http://www.cnbc.com/id/15840232?video=753754816&play=1 his point is a very good one, on the last day of the contract there is no speculative bid or ask, you have the true economic players AGREEING to exchange oil at a price. thats the pure price of the commodity, he reports that he did not see prices nose diving on that last day. the guy he was arguing with looked like have never faced that argument in his life and kept trying to change the subject by saying specs roll over, exactly, on the last day you have the price ex-speculation
I don't understand enough about it to make an educated comment, so here comes my uneducated one... I find it hard to believe that the price on the last day would plummet because most specs have rolled forward. There is probably a settlement calculation or agreement that those buyers/sellers have set to that prevents large fluctuation in price. Perhaps someone who understands it can explain what happens on the last day. If you had a situation where speculators who were long weren't rolling forward, but closing their contracts (and thereby selling) then I think you would have a collapse. But that's not what's occuring.
On the last day there are trades going on, real players buying and selling to make a voluntary exchange of oil at one price, thats the true price with no specs in it, santelli reports no nosediving of that price on the oil market. the only reason the price holds is because there is a real economic bid there
Yes, but you're not answering my question. Or perhaps I'm not asking it right. On the last day, the price opens at a point -what determines that opening point? The day before, right? The fact that these supposed speculators are rolling over contracts to the subsequent month doesn't affect the price. It's not like they're selling. So the opening price remains unmoved at that point and the speculative behavior moves to the next contract month. In otherwords, it seems (again, I'm not a pro) like the last day of the month is the settling day for the price. All the trading activity has gone out of it.
as far as I know thats not right. the specs will be selling the old and buying the new front through a spread order(roll over), its the arbritrageurs that will keep the market in check(if the old goes down too much they will bid, take delivery and sell against the new front or backs, im talking of storables here), but the bottom line is that once they got out what will determine the price will be economic supply and demand not the last trade price. if a group of idiots trade apples futures at $100 each apple for a month when they get out of the way real buyers wont bid and the real sellers of course will hit every bid that appears, thats a recipe for a price collapse, nobody has a gun on their heads to accept these prices simply because it closed there on rollover day. im not an expert in futures so maybe nazzdack or pasbt prime can chime in and tell me if im wrong
1) Wrong. Speculators can trade in a contract on its (LTD) last-trading-day. I don't recommend doing that. 2) In fact, it can be easy to "push around" an expiring contract with lesser size than it would be 3 to 5 weeks earlier when it is the "front month". Natural gas was more notorious for that before the Ameranth implosion. 3) Generally, only commercial users, i.e. hedgers, would be the most active traders on the LTD. 4) The expiring crude oil isn't going to drop 40 dollars in one day because there are spreaders who will trade it against other months and other contracts to keep the price "in line". 5) The NYMEX also has to make sure there is an orderly liquidation of the front month based on certified/deliverable supplies available. Because of that, there won't be a situation where there is a looming "squeeze" of the expiring contract. 6)
1) It's better to assume that speculators operate on the long and short side of the market, not long-only. 2) Most speculators will be forced out of their positions by their clearing firms before (FND), First Notice Day. 3)
1) The reason why the price "holds" is because commercial users perceive it as being the real value. 2) It's better believe that commercials hold the greatest sway over the market, not speculators. 3)