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2/27/15

Spread Gasoline KM5. Take profit

This Gasoline spread has reached the take profit area.


This is the post where I proposed the trade: Spread Gasoline KM5

The original idea:



Seasonal Charts: Scarr Visual Trading10% off coupon: 912CA5B4AB 

2/26/15

Spread Gasoline KM5 (5)

There are a few days left with bullish seasonality for this Gasoline spread. It has almost reached its target:


Seasonal Chart: Scarr Visual Trading10% off coupon: 912CA5B4AB 

Related post: Spread Gasoline KM5 (4)


2/25/15

Spread Heating Oil KM5

On this occasion, I want to take advantage of the bearish seasonality in this Heating Oil spread.



I´m already long in the same maturities (May - June) of the Gasoline spreadSpread Gasoline KM5

Why am I long Gasoline and Short Heating Oil in the same maturities?

Because Heating Oil´s seasonality is bearish before summer and Gasoline´s seasonality is bullish in the same period (driving season is coming).


Chart:  SeasonAlgo

2/24/15

Spread Feeder Cattle HJ5 (3)

My stop loss is very close in this Feeder Cattle trade:


I have not closed the trade because Feeder Cattle Index is getting weaker:


Related post: Spread Feeder Cattle HJ5 (2)

Seasonal chart: Scarr Visual Trading

2/21/15

Spread Gasoline KM5 (4)

The futures spread Gasoline May-June (RB KM5) has started the expected bullish movement.

If this movement in the spread fails, I will close the trade in breakeven.

Seasonal futures chart: Scarr Visual Trading

Related posts:

Spread Gasoline KM5 (3)
Spread Gasoline KM5 (2)

2/18/15

Deseasonalized Forward Curves

In this post (Lean Hogs: Forward Curve) I received a request from a reader about deseasonalized forward curves. I have deepened on these type of charts, and I want to share what I have learned.

Forward curves can be used to search for opportunities in trading with spread futures.

We can compare actual forward curve with arithmetic average of past years. In SeasonAlgo, they include a different calculation for past years´ average.

This calculation is made of the average forward price together with a convenience yield. This convenience yield introduces a seasonal forward premium.

The seasonal forward premium is a stochastic meaningful quantity estimated from historical data. It is defined with respect to the average forward price rather than the spot price. This model works better in commodity markets where spot prices are not readily available (absence of a reliable index).

The stochastic behavior in forward curves includes external factors such as extreme weather circumstances (outside the average seasonal pattern) and political crisis within producing countries.

Deseasonalized forward curve removes all seasonal effects from the forward curve. Seasonal features may bring noise to a commodity price´s evolution from an economic perspective.

Commodities prices from an economic perspective (excluding seasonality) are affected by many factors. Some of these factors are: supply and demand balance, inventory levels, transportation and storage costs and strategic and political reasons.

As I mentioned earlier, this model is more appropriate for commodities lacking an index for spot prices. A good application is energy markets.

Let´s see a couple of examples in the energy markets. First one is Gasoline. This chart includes actual forward curve (black) and deseasonalized forward curve (red):


Next example features Natural Gas actual forward curve vs. deseasonalized forward curve.
It is very easy to detect that seasonal factors that have been removed in both charts.

I will post my progress in these type of charts.  

Deseasonalized forward curves charts shown from SeasonAlgo.

2/15/15

Spread Corn September-December ZC UZ5

I have this spread with corn futures in my target for the next months. But it is not ready yet. We will have to wait at least one more month. I will use this post as a reminder.

In this old crop - new crop corn spread it is very important to wait for the right moment to enter. 

Black line is actual spread with 5 and 15 years seasonality trends:


Chart:  SeasonAlgo

2/11/15

Lean Hogs: Forward Curve

If we take a look into Lean Hogs´ forward curve, we can see there is an imbalance with deseasonalized forward curve.


Red line is last five years deseasonalized forward curve. Usually, Lean Hogs futures prices are higher in summer than prices in the earlier spring. This year we have the same pattern but it is exaggerated.

But I think the highlight of the graph is price weakness from October 2015 to April 2016. Market is expecting a big expansion in the hog market. But this difference should even increase.

Spread HE Q15-G16 is located in a low level. Next chart shows actual spread, together with 5 and 15 years patterns.


Charts from SeasonAlgo

This article might interest you: Forward Curve

2/9/15

Spread Gasoline KM5 (3)

These areas marked are Stop Loss and Take profit for spread Gasoline May-June (RB KM5):


Theres is still one more month with bullish seasonality, so it is waiting time.

Last related post: Spread Gasoline KM5 (2)

2/8/15

2/5/15

Feeder Cattle Situation (3)

Head and shoulders formation in Feeder Cattle futures is confirmed as neck has been broken.

In this situation, I am expecting lower prices for the coming months.


If lower prices arrive, non-commercials net position in the Commitment of Traders would become negative.

Commercials net position should increase as they cover their investments.

Last related post: Feeder Cattle Situation (2)