Ag trade ideas

[TraDaToR]

i have a fully automated spread trading system that i developed from a floor broker who had a extensive track record. he passed away and i would up with his materials and set out to program it into a mechanical model. it performs exactly as his work was performed by paper and pencil on graph paper.

below is a chart of corn and oats spread you can see the trends it gets into are pretty good.

i have everything printing out just as his manual figuring displayed. i have never done anything with it but it is one of my prize possessions.

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I have never used trend-following strategies on intra or intermarket spreads but I know a lot of people are. Actually sometimes my seasonal trades are in fact trend-following. We enter for different reasons but we all end up with the same trades...

 

[ErnstAugust]

I got it, thank you TraDaTor and as a seasoned trader do you have an idea on how large that spread between the two prices of different crops can be (I mean in the past few years) ?

 

[TraDaToR]

I got it, thank you TraDaTor and as a seasoned trader do you have an idea on how large that spread between the two prices of different crops can be (I mean in the past few years) ?

Backwardation : 160( 2008 )
Contango : -36(2011 )

 

[ErnstAugust]

Ouch ! Backwardation was frightening then. Useful to know that.

 

[TraDaToR]

It was the year of the food riots. Minneapolis Wheat spreads between March and May went backwardated +700( and it wasn't intercrop ). The outright market was opening limit up for 2 weeks or so. Plenty of people were caught short and had to exit their positions using synthetics via options.

 

[ErnstAugust]

Cant think at which IV. Does it make you to pay some protection using far OTM options when dealing a spread on futures ?

 

[Rachmaninov]

SRW is harvested in June. July 19 is the first 2019 crop expiry. May 19 is still a 2018 crop expiry.

When wheat price are high, the mean reversion is done through the inter-harvest period (May to July).
Being short May, Long Jul is highly correlated to short outright. (it's also very similar of shorting a call...)

I advised not to be short this spread currently and not to trade that without understanding inter-harvest.

 

[TraDaToR]

Cant think at which IV. Does it make you to pay some protection using far OTM options when dealing a spread on futures ?

I am not sure what you mean. Do you mean far OTM calendar spread options?

 

[ErnstAugust]

I meant far OTM puts for the long leg and far OTM calls for the short one (it could be vertical spreads).

 

[TraDaToR]

No. I don't use such protections. For instruments that usually explode when they invert( Robusta ), I put a hard stop on the calendar spread. By the way, you can trade calendar spread options on CBOT, some are fairly liquid I think.