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duc's Commodity Trading Thread

Discussion in 'Commodities' started by ducati916, Nov 21, 2018.

  1. ducati916

    ducati916

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    On oil, Smurf had this to say:

    USA = 660 million barrels able to be released at at a rate of 4.4 million barrels per day.



    In short the notion that US President Donald Trump decides to dump 4.4 million bpd of oil on the market is not totally out of the question in my view. That may seem an odd thing to do but we are living in a time when many "unthinkable" things do tend to happen "just like that" and in that sense I note the apparent tensions between Trump and OPEC and Trump's repeated calls for lower oil prices.

    As background to that theory, booming US oil production does substantially remove the original rationale for having the strategic reserve stockpile. At the very least it substantially reduces the size it needs to be in order to cover any given period. That being so, and adding in the political factors, my thinking is that a substantial release of oil is not out of the question. A slump in price would put a stop to the US production boom yes, but never count on politicians of any persuasion to think too far ahead.


    Now that is an analysis, whether it comes to fruition or not, is definitely worth considering. It [could] also explain the current COT number.

    Certainly the analysis that I have been reading over the past few weeks was pretty consistent that Trump wanted the oil to flow and lower prices. That OPEC cut, is a something that he might well take personally, that is the sort of chap he is. Therefore as retaliation, he releases the reserve. Why not.

    jog on
    duc
     
  2. ducati916

    ducati916

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    LONG Orange Juice.

    Not a great entry at $138.90

    jog on
    duc
     
    Darc Knight likes this.
  3. tech/a

    tech/a No Ordinary Duck

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    Why long Orange?

    Are you ever concerned about a locked limit event occurring

    Radge has some horror stories.
     
  4. ducati916

    ducati916

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    Yes.

    However, that has to be managed as best you can. There are a couple of ways, one of which I use, which is simply trading the volatility of the position rather than the price of the position. In this structure lock limits add [significantly] to your profitability.

    jog on
    duc
     
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  5. tech/a

    tech/a No Ordinary Duck

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    How do you trade it? Options
    If your on the wrong side of the volatility
    Locked limits can smash you.
     
  6. InsvestoBoy

    InsvestoBoy

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    If you use options you can always limit losses, contractually.

    Long Straddle/Strangles provides long volatility have a defined pre-set loss, which is equivalent to total premium paid.

    Short Iron Condor short volatility with defined pre-set loss.

    You generally need to hedge deltas as the underlying moves in either case though.
     
  7. ducati916

    ducati916

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    If your structure [of the trade] is long the Option and short the underlying [futures/stock] adjusted to the correct ratio [gamma/delta] then extreme volatility [and lock limits] work very well with that position.

    You are then essentially trading volatility, not price. The more extreme the price moves [in any direction] the greater your profits. This is generally how I like to trade [for many years now]. You are agnostic to price movement, except that you want [need] it to move.

    jog on
    duc
     
  8. tech/a

    tech/a No Ordinary Duck

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    Duc

    Can you put up the positions of both sides of a few trades
    At time of setting up the trade short or long and at the
    time of closing out a trade with the finished result on each
    side.
    Would be good to see how this plays out in real time.
    What is the average length of a trade?

    How do you pick the option.
    How do you choose option or Future if both are available.

    Interesting.
     
  9. ducati916

    ducati916

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    tech,

    You would pick the Option based on a low Implied Volatility [IV] to its historical volatility.
    You would want therefore the asset class [commodity] historically to be volatile.

    You then input the numbers into a Black Scholes [BS] calculator using your projected Volatility, which is based on the [higher] historical volatility than the current [low] IV. This will provide you with a 'hedge ratio' or 'delta'.

    You then buy the Call and sell the underlying [futures].
    Periodically you re-adjust the hedge ratio via BS.

    This may involve buying back short futures, or selling additional futures [if price moves higher]
    At Expiry, you close the position. If realised volatility is higher than IV when opened, you [should] be in profit. I say should, as depending on commissions etc, you might have less than the theoretical model predicts.

    Usually 10 weeks is about right. Big moves [down] can take the Option too far out of the money to make it worth holding simply a long option. Your profit will tell you this and any remaining value in the option.

    So yes, I can do a trade. I'm looking at oil [again] currently as IV is coming down [it was as you might imagine, pretty high there for a while].

    Hence a flippe-floppe is only taking profits on one side of a position.

    jog on
    duc
     
  10. ducati916

    ducati916

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    So:

    Screen Shot 2018-12-14 at 2.42.57 PM.pngScreen Shot 2018-12-14 at 2.43.12 PM.pngScreen Shot 2018-12-14 at 2.43.25 PM.png
    These are your inputs.

    Currently IV = 35.5%, thus a conservative input of 45% yields a theoretical profit.
    Current cost of a Call on oil with 62 days to expiry = $3.27.
    If vol goes higher, it was in the 80's at one point, higher profit.

    I'll put the trade on, the numbers will be slightly different [obviously] later when the market is trading.

    jog on
    duc
     
    sasch and Skate like this.
  11. ducati916

    ducati916

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    So I opened a trade in NFLX.

    Long February Call Strike $275 (x2) @ $23.85 [expiry 15 Feb. 2019]
    Short 100 shares @ $274.64

    The IV rises regularly to 60%+ currently it was sitting at 49%, so 55% should be a fair guess.

    jog on
    duc



    Screen Shot 2018-12-15 at 7.39.08 AM.png
     
  12. ducati916

    ducati916

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    Oil is currently looking [on a chart] very bearish.

    The entry point however is not [currently] to my liking. It is interesting that the COT indicated a short position based on last week's numbers. I might try some quick trades short if I get a good entry point.

    jog on
    duc
     
  13. ducati916

    ducati916

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    Looking at a 'longer' chart [timeframe], I'm far more bullish. So I am LONG at $51.06 [1 contract]. I will let this trade run over the w/e into next week. It will also be interesting to see what the COT number is this week. I am guessing that there will be a reduction in the short position.

    The low is $49.43 which is too low for me. The next low is $50.22, which will be my bail out point.

    jog on
    duc
     
  14. ducati916

    ducati916

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    However, the bearish news is still out there:

    Signs of demand slowdown in Asia. Refining figures in Asia suggest demand could be slowing down in the region, Bloomberg reports. Asian refining margins are at an eight-month low, which could be a leading indicator of slowing consumption.

    Neutral Zone could reopen. Saudi Arabia and Kuwait are nearing a deal to restart idled oil fields in disputed territory along their shared border. The so-called Neutral Zone oil fields have the capacity to produce 500,000 bpd, but have been offline for several years. The U.S. government has leaned on both countries to resolve their differences, with an eye on shrinking supply from Iran. Chevron (NYSE: CVX), which jointly operates one of the fields in Kuwait, said it maintains “readiness for a production restart when that time comes,” according to the Wall Street Journal.

    EIA: U.S. to average 12.1 mb/d in 2019. The EIA said in its latest Short-Term Energy Outlook that the U.S. should average 12.1 mb/d in 2019, up sharply from a 10.9 mb/d average this year. Notably, the production estimate is mostly unchanged from previous months, even though oil prices have crashed. The EIA even lowered its expected price for Brent and WTI in 2019 by roughly $10 per barrel, but the agency clearly thinks that the production gains are mostly baked in already.

    So I will probably have to close this trade prior to POO reaching $100/b.

    jog on
    duc
     
  15. ducati916

    ducati916

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    So this week's COT number is (-103,628) which is a 2% increase in the SHORT position.

    Certainly the POO has stayed flat and is trading in a fairly tight range.

    I would argue that because the Commercials are generally counter-trend traders, that they are still short near their previous highs, that there could well be further price declines.

    The takeaway message [for me] is: trades of short duration until a new trend is established. Ranges are a trend, but they require long/short trades to make money, which is where we currently seem to be.

    That would mean for me, dropping down from a weekly or daily chart into an hourly chart.

    jog on
    duc
     
  16. ducati916

    ducati916

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    Given that the Commercials are a proxy for the Producers who want to exchange oil for cash, has US production slowed due to the current price decline. No not really. They are still selling high amounts, possibly to beat out any further price declines.

    With demand slowdowns, even though OPEC has said reduced supply early next year, currently, supply is potentially too high. Too high a supply equals lower prices.

    Therefore this current range, could, very easily break lower.

    Screen Shot 2018-12-16 at 9.02.11 AM.png

    jog on
    duc
     
  17. ducati916

    ducati916

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    After some flippe-flopping through the night and early morning I am now SHORT oil.

    Increasingly I found holding duration of long trades was diminishing and the profits were also shrinking. Therefore I am onboard with the COT as the 'trend' could well be [starting again] lower.

    jog on
    duc
     
  18. ducati916

    ducati916

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    Nothing to do in the NFLX position.

    jog on
    duc
     
  19. ducati916

    ducati916

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    So over $1/contract in profit with trading just opening up. So I will sit SHORT and try and let the profits run, just in case this is the start of another leg lower.

    The short position is consistent with:
    (a) COT analysis; and
    (b) fundamental news out last week; and
    (c) Ann's 'megaphone' pattern [never heard of that one before]; and
    (d) current price action.

    jog on
    duc
     
  20. ducati916

    ducati916

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    Some oil stuff:

    Oil prices crash to one-year low. Oil prices plunged by more than 4 percent on Monday, and the selloff continued in early trading on Tuesday, pushing WTI down below $48 per barrel. The proximate cause this time was a report of rising U.S. oil inventories at a time when global equities were sharply down. “A large part of the move (lower) is due to a broader market sell-off, with both U.S. and Asian equity markets coming under pressure,” Warren Patterson of ING, told Reuters. “Specifically for the oil market, there are no clear signs yet of the market tightening,” he added.

    Stock market turmoil. U.S. equities fell sharply on Monday, and the selloff continued in Asia on Tuesday. Concerns about slowing growth in China and elsewhere are starting to magnify investor anxiety. Chinese President Xi Jingping gave a speech Tuesday, declining to offer new stimulus measures or proposals to ratchet down trade tensions with Washington. Asian markets fell after the address.

    New discoveries up in 2018. The oil and gas industry is expected to log the largest set of new discoveries this year since 2015. Discovered resources stand at about 8.8 billion barrels of oil equivalent, and could close out the year at about 9.4 billion boe, according toRystad Energy. “We at Rystad expect this discovery trend to continue into 2019 with many promising high-impact wells targeting vast potential,” Palzor Shenga, senior analyst on Rystad Energy’s Upstream team, said in a statement.

    New oil and gas projects jump in 2019. The number of new oil and gas projects to move forward next year could jump five-fold from 2015 levels, according to a report from Wood Mackenzie. At the same time, industry spending could remain mostly flat at $425 billion, down sharply from the $770 billion in global spending back in 2014. Many oil and gas companies have cut costs and can do more with less. But WoodMac says that the industry is still far short of the $600 billion in spending needed to meet future demand.

    jog on
    duc
     
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