Futures curve based alpha strategy

Discussion in 'Commodity Futures' started by mizhael, Feb 15, 2011.

  1. Futures curve based alpha strategy

    In an Merrill Lynch commodity report, they mentioned about a futures curve-based alpha strategy.

    It's a systematic trading strategy.

    It looks attractive...however, being a proprietary strategy, they didn't give any further details...

    Anybody could kindly please point me to how this strategy possibly works?

    I am interested in doing a backtest on this type of curve-based strategies, and I will post some results...
  2. 1) Wilmott. :p
    2) Is it simply to do bear-spreading in the front-months of NYMEX crude oil? :confused:
    3) Does it have to do with buying tanker loads of oil and then hedging that with deferred futures? That may be "played out" already. :cool:
    4) A backtest will only "confirm" good results from the past, not guarantee profitable results going forward. :(
  4. bone

    bone ET Sponsor

    Intermarket commodity spreads generate pure portable alpha.

    That is exactly what they are talking about. You are generating returns completely independent from flat price directional risk. If a strategy can generate returns independent from equity market and fixed income market flat price directional risk, it is especially coveted by portfolio managers. Everybody is chasing alpha.
  5. Alpha is a good thing, but ML isn't suggesting <i>intermarket</i> trades. No guess where you got that idea.
  6. bone

    bone ET Sponsor

    futures curve = forward calendar spread curve

    look at the futures curve studies on a Bloomberg terminal.
  7. OK, everyone agrees now, I think -- ML is talking about <i>intra</i>market, not <i>inter</i>market (sic) spreading.
  8. I would guess it's VIX, due to the massive increase in OI in the back months.
  9. ?

    The ML products OP is discussing are based on physical commodities. I've read the ML reports and updates. (Obviously, ML offers all kinds of equity volatility related products also).
  10. What's the fundamental theme behind "bear-spreading" the front-months of NYMEX crude oil? i.e. why should it work?

    Being a systematical trading strategy, they probably won't do buying physicals therein...

    #10     Feb 17, 2011