N11/Z11 came off hard last few days. Ethanol usage down, but China saying their stocks are lower than previously figured.
Yes, Z11 is probably too high relative to beans but it is being bought against the old crop as spreads fall apart. Just won't go too much lower just yet. Bothered by N/Z because of the funds huge position, corn market has never dealt with a record long fund position at this kind of an inverse. Regards, local
Hey Local I am following the thread with great interest, was just curious because I know you say you have experience going back a long way can you recommend any informative books on spread trading that maybe have some relevance? I trade currency futures and I am starting to look for alternatives to reduce volatility by looking at spread trading or options. Thanks for the help and I look forward to the thread as it is a field of trading that Iâve always been curious of.
The COT is very important. It summarizes the open interest by particaipant. I think it provides an advantage to the commercial that maintains a perpetual short position. If the you make the assumption that the commercial short position is offset by a long cash position, then disclosing the COT is relatively insignificant to these particapants. If, however, the funds carry a long position and make up a significant % of the open interest, you should expect the spread to move towards full carry when they roll their position. The preceding makes the assumption that the funds will not stand for delivery which is valid for most contracts, (Minni wheat may be an exception)because position limits will not allow to do so. The second assumption that is necessary is that the fund longs are in the nearby. In many cases funds have become predictable as to when they will roll, so much so that in some cases the rolls have been given names. When I traded a short spread position against Jim Rogers long futures position, his roll was like clockwork, I knew which days of the month the roll would occur and traded accordingly. This limited my risk by not carrying the position any longer than I had to(I think spreads have time value, e.g. much more willing to buy a spread at full carry six months prior to delivery than a day before delivery). In the end, this was the closest thing to a regular paycheck that I've had in the last 20 some years. I do not know why the funds let themselves become predictable, but it is something that the market has become accustomed to and uses against them. Regards, local
COT link http://www.cftc.gov/MarketReports/CommitmentsofTraders/index.htm A fundalmental trader is a must to look at the COT.
Re literature on spreads, Can't say I have come across a book worthy of recomendation. If you are looking for something to complement the content of this thread, I would look for something written by someone with a similiar background to mine, ex-local, commercial, Msc. Ag. Econ. The perspective that I express in this thread may be somewhat unique to this forum as most rely on technicals, but I think it is somewhat represenative of traders with commercial/ floor experience. Regards, local
Thanks Local, what would be the minimum composition of the open interest for the funds roll to have a significant effect on spreads ? Do they have an effect when non-commercial net long position is for example 40% of OI? Can you assume the same roll in case of a short position of specs( natural gas for example )? Would it be logical to go long nearby-short deferred before their roll?
Local, I agree with you. I refuse to listen to those who give advice on certain parts of trading when their not traders themselves. I believe you offer great insight on how to properly spread trade and I will follow this thread religiously. As for learning how to spread trade I will do what I did when I first started trading, RESEARCH!! AND EDUCATE!!! And maybe ill get the hang of it.. Thanks Again JP