There isn't much out there on crude oil calendar spreads. My best piece of advice is to keep up to speed on the rolling 30-day average true trading range and let that dictate your risk/reward targets, holding period, and technical setups.
Energy (CL, NG, etc) spread trading can be frustrating for new and retail traders. The trading cost is high and return is relative low. It is more suitable for institutional traders who have edge with the energy market and the fact they are happy with 10% to 20% return, but can't take even a 5% drawdown. I know of a shop who trade energy spreads exclusively, NG, CL, HO, RB and cross spreads. They have seasoned NYMEX floor trader, also people who know the energy logistics, like refining and transport, etc. They trade hundreds, even thousands CL and NG per day, and the markets are all institutional traders.
RedSun, my experience has been quite to the contrary. Energy spreads are the best risk/reward out there for a modestly capitalized independent trader. I have some newbies clearing over $10K per month NET trading the RBOB Crack spread alone. And they are paying non-member "retail" rates through IB or Advantage futures. Right now the CL and NG calendars are slow (seasonals), but between September and March they will rock. We model 'em and we trade 'em. I have 30 clients who used to trade alot more equities and interest rates than they are at the moment - they are getting sweet love in the energy and the metals spreads right now.
Yes, we differ. The pros would want to be the newbies to trade crack spread profitably. With direct trading cost/fees 20% to 40% of the total gross profit, the traders have to have the edge. Some of the technical trading rules won't work with spreads. Glad that your traders are doing well...
The RBOB Crack Spread has a 20 day ATR of 60 tics. We risk 10 tics to make 20 with that kind of range. Risk $90 to make $180 on less than $5 for commissions and exchange fees full round turn (retail rates non-member) all-in on an exchange-supported implied spread. I used to trade institutional energy with ComEd/Exelon - OTC Nat Gas and Power for stupid size. I also trade ClearPort and ICE financially-cleared OTC. The energy markets are more fungible, and have more physical delivery than any other futures market. You are somewhat naive about institutional participants in the energy markets - they make their intentions quite clear.
If you are not naive, then you know risking $90 will always make you $180, not losing $180?! If trading is this easy, why don't you keep trading and making all the $? The shop I know of is one of the known speciality spread trading shops, not something like ComEd or Exelon who do not have a big prop trading book. This guy was at NYMEX floor for many year and made decent $ year over year. He know what he is doing.
You know somebody from the floor, and that makes you an oracle? Me too. The Nymex floor means nothing to me - just ask Mark Fischer how the screen is going for him. I have seen very few Nymex floor traders make a successful transition to the screen. Did you know that a floor local on Nymex didn't have to take a market order from a broker - but a Nymex local could hit or lift a broker's order at market and without exception? If your brother-in-law isn't setting you up, or if you can't race the paper and screw them over for 20 cents, then why bother... At least the CME and CBOT floor traders were fair game for broker orders and knew how to lay it off. And yes, I get member seat rates on all of them - Nymex included. And yes, I traded on the floor. I am 50 years old with 3 kids, and have made money trading full-time for 18 consecutive years. I trade for 2 or maybe 3 days a week, and service my clients the rest. It is great for me - I get to stand up and walk away from the workstation for one or two hours a day. Do stuff with the kids, work on the boat, play with the dogs. I can even take a day or two off. I love my clients and they love me.
I'll throw one out, I have way more half-baked ideas than time to follow through on, maybe somebody can tell me if this sounds promising. When you write the formula for the theoretical value of the spread, one of the components is the convenience yield. This is sort of like implied vol in an option - an important input that is unobservable but can be backed out from prices and the other observable inputs. My hunch is that studying patterns in convenience yield can lead to trades - maybe extreme values of convenience yields tend to reverse or something like that. Maybe the other components of the spread have a good reason to be what they are but the convenience yield is largely driven by buying/selling pressure and will revert to the mean when the pressure subsides?
You're better off studying rolled commercial longs vs. rolled commercial shorts. The backwardation and contango get so pronounced and trends so hard because commercials prefer to hedge with strips, and those strips are either rolled monthly with the front cal or delivered. To that end, mean reversion is fine when CL flat price implied vols are low, but for the past five years we have been much more successful modeling and trading divergence. There is also the "Goldman Roll" component - ETFs and commodity funds rolling long and short positions. IMO the COT reports tell only part of the story. Platts is excellent in this regard.