Seasonal spreads

Discussion in 'Journals' started by hrokling, Apr 23, 2007.

  1. kahai


    I just confirmed with IB that they do not support sending spread orders to the floor.

    BTW, I changed my strategy somewhat. Originally I wanted to follow the Weekly Spread Commentary (WSC) from MCRI as closely as possible but looking in more detail at their hypothetical past performance I am changing my strategy. I will exclude all energy spreads because when I look at their last year's performance that was the only class which suffered losses and I wonder if in today's geopolitical situation historical seasonal patterns are still relevant in this sector. I am also excluding all notes and bond spreads, I faintly remember when I read long ago about these spreads that they are rather sophisticated, need to be weighted and a simple 1:1 ratio based on seasonal patterns seems too simplistic.

    Last year the WSC had a drawdown of about $13,000 and the Monthly portfolio of about $18,000 but when you look at the 17 year equity curve the Weekly once had a drawdown of about $20,000 and the Monthly of about $50,000, not that this is extraordinary but one has to be aware of the risks. BTW, I asked them what they suggest as their minimum capital to trade each portfolio as suggested and the answer came back: That depends.... - I can understand that they don't want to be pinned down to a number.

    From now on I will overweight the low risk spreads like the agriculturals, especially calendar spreads.
    #51     Jun 1, 2007
  2. I've been having success with seasonals, but you definately need to pick and choose from MRCI's suggestions. I pretty much ignore any of the financials, currencies, or anything else where I can't see the seasonal logic. Not to say I don't trade financials - ED has made me a lot of money this year - but you need to pay attention to the Fed, and "get inside Bernanke's head" to figure them out. Time of year has nothing to do with it.

    Also, about the suggestion upthread to switch to NYMEX for softs: note that these are "clone" contracts that NYMEX created before NYBOT went on the ICE to try to steal volume from it's cross-town neighbor. They were never very popular, and now that the "real" contracts are available electronically they are completely drying up. Liquidity is virtually non-existant. The problem is with IB: they have finally gotten the NYBOT softs on their system, but it seems they haven't implemented spread capability for them yet.

    Also, if you haven't yet, pick up MRCI's book on seasonals. It gives a pretty good overview of the dynamics of each market...
    #52     Jun 5, 2007
  3. kahai


    Thanks jimbohanna, any pointers are appreciated.

    I have a hard time rationalizing seasonality for the Financials, however, the same thing could be said about the Currencies, however, not only did I make already some good money but when I further took a closer look at MCRI's 2006 performance report, the most successful Market Complexes in 2006 were: Currencies, Meats and Financials. I have a request in with MCRI to let me know what the statistics are over a longer time period to see if certain Market Complexes should be favored or not. I might have been premature with the conclusion in my previous post because it might well turn out that there is no pattern of favored Market Complexes and maybe just diversifying among as many Markets as your capital allows is the best method to smooth out the equity curve.

    I also recently subscribed to another spread newsletter (if you want to know the name please PM me, I don't want to be accused of promoting anything) which presently only does agriculturals, usually not more than 3 to 4 positions at a time and I thought that would be very conservative (recommended capital is $20,000) but later I found out that last year he had a draw down of 63%. I am investigating some other newsletters presently to see if anything might be of interest to me in the spirit of diversification.

    Any comments are always very welcomed.
    #53     Jun 5, 2007
  4. kahai


    jimbohanna, one more questions: Can you recommend any books, advisory letters, etc regarding how to trade the financial spreads? How did you learn it?

    BTW, the best answer I got back from MRCI how the different markets for the Weekly Spread Commentary performed was the period from Aug 97 to Dec 04, here it is in descending order: Energies, Metals, Soy/Grains, Meats, Financials, Fibers, Forex and Softs (the only market which lost money during that period). So the conclusion seems to be one has to underweight the last 4 markets when following MCRI's recommendation.

    Another conclusion I reluctantly came to: One can not avoid occasional large drawdowns in this business.
    #54     Jun 6, 2007
  5. My trade in Unleaded Gasoline is going well and is up close to 5.000 usd at the close of trading today. Looking at the historical performance of this seasonal spread, it really blows earlier trades away when it comes to profitability: In the period of 1986 to 2004 it's been more profitable only one single time, so I'm currently contemplating whether to take the profits off the table. Since it's just one contract it's not possible to sell half.

    This brings up a question about my strategy for trading seasonals: Should I have some sort of realistic profit target based upon historic performance of the spread? This spread is already more than five times the average net profit per trade (including winners and losers). I'd be curious to hear what you think.
    #55     Jun 11, 2007
  6. Today I entered into the following Cotton spread:

    Long 1 May 08 CT Cotton, Short 1 Oct 07 CT Cotton @ 0.560
    #56     Jun 12, 2007
  7. kahai


    hrokling, congratulations to your unleaded gasoline spread. I took the rbob Oct 07/July 07 @-24.75 on June 5 but got out far too early at a profit of $987 since the average profit for that spread was $983. However, I took profit from the CAD Sept/AUD Sept spread at $1,428, that was a good move because at yesterday's close it was down -$840.

    Did you do the cotton spread on NYMEX or NYBOT (legging in). I am supposed to do the CT July08/Dec08 tomorrow but IB supports the combo only on NYMEX.
    #57     Jun 12, 2007
  8. Thanks kahai, and congratulations to you on your CAD/AUD spread.

    I legged into the CT on NYBOT (or ICE I should say), with the May first since the spread was so wide. Yes, no combo on IB unfortunately, it is a bit time consuming to sit and leg in. I'm planning to sit to the end of august with this one, and I might add another contract as the account has grown a bit with the energy trades.
    #58     Jun 12, 2007
  9. Sold 1 Mar 08 CC Cocoa, Bought 1 Jul 07 CC Cocoa @ 79 - CLOSED - PROFIT 14, or USD 140.

    Nothing special about this I guess, although a profit is always nice. Compared to historical performance this netted about half of the average net profit. In retrospect I should have had 1-2 more contracts on when looking at the volatility.
    #59     Jun 14, 2007
  10. I think the Eurodollar-spread has bottomed, and added another contract:

    Long 1 Mar 08 GE Eurodollars, Short 1 Sep 07 GE Eurodollars @ 0.060

    The position size is now 2, with an average of 0.110. I plan to hold this into September.
    #60     Jun 19, 2007