Treasuries and Energy

Discussion in 'Financial Futures' started by bone, Oct 7, 2009.

  1. bone

    bone ET Sponsor

    The majority of my clients were/are yield curve traders who are looking to transition away from the curve trade or are searching for an additional revenue stream to augment their existing fixed income market trading. They are typically surprised and pleased with the multitude of electronic spread trading opportunities in the energy markets. Some of the more common possibilities are:

    Nymex Crude Oil Calendars and Butterflys
    Nymex Natural Gas Calendars and Butterflys
    Nymex Heating Oil Calendars and Butterflys
    Nymex RBOB Gasoline Calendars and Butterflys
    Nymex Heating Oil Crack Spreads
    Nymex RBOB Gasoline Crack Spreads
    ICE Brent Crude Calendars and Butterflys
    ICE Gas/Oil Calendars and Butterflys
    ICE Gas/Oil Crack Spreads
    Nymex WTI Crude vs. ICE Brent Crude
    Nymex Heating Oil vs. ICE Gas/Oil

    Chances are that your present charting, news, clearing and electronic execution infrastructure accomodates the ICE and Nymex exchanges. In my mind, energy is a real spreader's market. Fixed Income spread traders who can model markets these markets correctly can indeed make a rapid expansion into these markets. The ICE exchange and Nymex have alot of educational materials free to download on their websites. The Nymex Crack Spread .pdf is an excellent primer.

    I still trade the Treasury markets every day, but it's nice to have energy and equity spread trades there to cherry-pick as well.
  2. what about the 5 yr against OIL ?

  3. bone

    bone ET Sponsor

    FV vs. CL has a 2-year correlation of -80.9% and a z-score of

    No good, no how.
  4. kmartlife


    Why are so many of your clients moving out of yield curve trading? Is there a general lack of opportunity?
  5. bone

    bone ET Sponsor

    One of my clients just emailed me to say that he made money in four different spreads which I modeled for him and which we reviewed together last night: two currency spreads, an equity index spread, and a STIR spread.

    I would say that 75% of my clients used to trade yield curve exclusively (including the client I mentioned above). Many of them have come to really like the energy markets after spending some time with me and the system I teach. My value-added is that I give clients many more markets to trade, and a proven and effective system to do it consistently. Nothing ever good happens when a trader forces things, and the risk/reward skews are much better if a trader doesn't rely upon only a couple of markets for his income.

    Anyone who truly shows serious interest in my program can independently contact some of my current clients in order to make an informed decision regarding the value of my services. I also provide serious prospects with extensive due diligence materials on my background.
  6. Bone, you are talking about options butterfly spreads in your list above, correct?

    I may be mistaken but I believe Nymex does not provide exchange quoted butterfly markets for the energy FUTURES markets you listed. Can you confirm?
  7. bone

    bone ET Sponsor

    Futures butterflies and condors. I teach my clients to leg exchange-supported spreads to arrive at the correct position and hedge ratio. For example, if you buy the Dec-Jan spread and sell the Jan-Feb spread, you end up with a 1-2-1 butterfly with far less slippage than anything you could leg into on an individual contract basis.
  8. bone

    bone ET Sponsor

    For those of you wanting to transpose your technical study setups from the yield curve spreads into the energy spreads, please keep the obvious in mind that the intermarket correlations and the volatility characteristics are markedly different.

    Especially you STIR traders who like to fade one sigma moves with volatility or range bands/channels.
  9. Isn't there an inherent declining return on investment (for your traders at least) when you encourage them all to pusue the same strategy?
  10. bone

    bone ET Sponsor

    Well, technically my clients aren't trading for me, and I certainly don't make buy or sell recommendations for anybody. I provide my clients with a number of highly refined spread trading combinations and a technical study model based upon statistical time series analysis. Essentially, I have a consulting contract with my clients, and I do not profit in any other way in terms of skim, brokerage, hardware/software fees, etc. etc..

    I personally trade, and I have a trader who works for me, who trades the exact same methodologies. The models I use are not static but dynamic in nature, and are in a state of constant tune.

    The shear number of spread combinations available to me and my clients makes replication and states of diminishing returns far less damaging - in essence, I have many markets and cherry pick entry points.
    #10     Nov 19, 2009