So I trade CL frontmonth only, and so far contango hasn't impacted my CL decisions. But talking to several other CL traders today, they brought up a point whereby since short USO into these rollovers is making coin, the front month has to get dumped and next month bought obviously. This keeps the next month out more bid then the front month. I'm aware backmonths are even better bid, they have not cracked lows, but obviously it's a month to month thing. My dilemma is this : I have a long signal generated today for possibly 1-2 days. Do I buy MAR or APR? It would make more sense to trade APR based on this, but so far all my trades have been based on the front month and the next 2 days is still during rollover. I'm looking at action in both months and will monitor results, but just wondering if someone had a reasoning as to which month to trade in such a contango during rollover.
I have noticed this too, I am holding a short position in the Mar instead of rolling to apr because of this. If I was long I would roll early. Since I am short I am staying in it longer than I normally would. For you I would definitely buy the Apr instead of the Mar, open interest has rolled to Apr already. http://www.nymex.com/lsco_fut_csf.aspx?product=CL 5yrtrader
I would buy the front month because it's more volatile than april, more points up and down. The divergence at the close, march not april making new lows, could have several explanations...
This has been happening for a while, the spread between the front and next month has been getting blown out. If you have to be long you have to be in the Apr or farther out. The Mar dropped $1.66 more than the Apr did today. I believe the OP is right that its the long commodity funds rolling out of the front month and into the next that blows the spread out every month. 5yr
The roll should be made at least 1 week before expiration, but you will lose money anyways, You only makes money on a roll with a backwardation market and we are in a deep super contango situation.. Its true that the from month have more intraday action, but the backmonths offer stronger trends. (in my humble opinion). I suggest you to trade the inter-month spreads instead, they have a huge strong trends since late june. Short april-long may for example.
Don't forget the same storage implications at Cushing that have become evident has a factor to play in the March April crude spread being so weak. The roll certainly hits it, but not to this extent.
If you've identified a reliable pattern of price movement, either in the spread or in the legs thereof, trade it and collect profits. Why wouldn't you?
Because most people need to see it repeat and then think, let's see if it repeats again and again, and by the time they decide to trade it it's over and never to be seen again. Although I think this contango will be here for a couple more expirations. I've played it long after the roll and sold into the rallies using UCO.