How do you trade Brent oil futures longterm?

Discussion in 'Commodity Futures' started by Sequoia1321, Jun 18, 2020.

  1. I'm new to long term futures trading, but have some positions in Brent crude that I was wondering about how to trade, given the roll over aspect of the contract, as well as the tax consequences. I was thinking that I may hold the futures for many months, possibly over 1 year. Should I stay in the curren month and keep rolling over to the next month, or get a later expiring contract? Also, regarding the tax, if I roll over to the next month contract will I be required to pay tax on that trade as if I closed my position?
  2. Overnight


    I guess that depends on the country you live in.
  3. USA
  4. Overnight


    As you roll, you will be accumulating gains (or losses) through the year. What matters is your end-of-year gain or loss. You can gain a million, in Q1, lose a million in Q2, and BE by Q4. Your net gain is zero on the year. That is what you would report.

    However, if you buy a long-term dated contract? Say, Mar 2023, then at end of this year you will be reporting an open position, marked-to-market on Dec 31st. You will pay taxes on that unrealized gain (or nothing if it is an unrealized loss).
    Sequoia1321 likes this.
  5. Would you, if you were in my position, stay in the most recent contract and roll it over, or get something further away? What are the advantages and disadvantages of these different routes? Doesn't seem to make a tax difference if what you say is accurate, that either way I have to pay taxes on my gains for each year, even on an open position. So I guess the question is, what are the other advantages or disadvantages?
  6. bump
  7. Sequoia1321 likes this.
  8. bone

    bone ET Sponsor

    Google "IRS 1256 commodities contracts blended capital gains tax"

    And use the calendar spread to roll your position. That's what it's there for.

    You can use a dated second month spread.

    For example, to roll a long August '20 contract well into the future, you could for example sell the August20-December20 spread which would roll your long outright August20 into a long outright December20 position with minimal slippage.
    Sequoia1321 likes this.
  9. upload_2020-6-24_8-18-19.png

    Here is what it looked like a few minutes ago. I'm currently in the August but must roll over soon. October is lower, backwardation? September is higher. Not sure what to do. I think someone mentioned options but am not comfortable with that right now.
  10. bone

    bone ET Sponsor

    Some of those dated expiry price prints are latent artifacts when you’re looking at a price ticker - don’t read too much into singular month anomalies.

    I’m not sure yet I necessarily agree with the notion that you’ll make money in Backwardation for your particular circumstance as a function of roll yield.

    Your outright flat price risk is far far greater than roll yield risk if I understand your position correctly. If you roll August into a far dated expiry just understand that the dated expiries typically have a more muted trading range as compared to the prompt month.

    #10     Jun 24, 2020
    Sequoia1321 likes this.