Another hedge fund on the brink

Quote from scriabinop23:

you can have a spread move while the outrights stay still. point risk trading spreads is usually within the 0-2.00 range, while outright positions obviously are completely exposed. problem with everything is that when you have less supposed volatility, leverage gets piled on to offset that.

hence, 1-2 minis outright could said to equal 1 full size spread (long short one month) in risk exposure, realistically speaking.

A $1.00 move on 1 spread is $10000, equal to a $4.00 move on 1 mini...

spread trading is nothing to laugh at - and there is indeed risk wherever you look.
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Yeah, the article where the hedge fund founder Maounis says the positions were hedged rubbed me the wrong way, Brian piled on leverage to offset that decrease in daily gain/loss in an attempt to get large gains. The other factor which I think is important is that to get the same risk exposure using piled on leverage you have to take much larger positions. That totally screwed him, because now that the other market players knew he was in trouble, he had no way to get out of his highly leveraged position.

Say I have $11,000 in my account, I can trade a single full size NG contract or TEN contracts in a spread 5 long 5 short. With 10 contracts the liquidity is not so much a problem., but it's still 10x as many contracts to deal with .

Now say I have $1,100,000,000 in my account. Now we have a liquidity problem in moving 1,000,000 friggin contracts trading out years away (I think Hunter did the March-April spread on 2007, 2008, 2009, 2010, 2011, and 2012, going long March and short April). If he had taken a position directly he would have 100,000 contracts to move rather than 1,000,000 contracts.

Isn't the risk still unlimited with a spread trade, I mean spreads can go negative as they have with the 2007 March-April spread (-$0.02) that was +$2.40 earlier in the year when Hunter initiated his trade. It seems just as risky if not riskier than a straight trade since you can increase your leverage an additional five times above the leverage with a straight trade.

Looking at the first hypothetical account, if I had gone long using all of my account equity on the march 07 contract instead of taking the march 07-april 07 spread in April 06, the loss is smaller on the straight trade (assuming I kept meeting margin calls up to this day). $2.42 loss* 50,000 on the spread versus $5 loss* 10,000 on the straight trade.
 
Quote from eugenie98:

I've only been trading very small e-mini positions with natty for three months to familiarize myself with the market dynamics. I am a geoscience major specializing in energy and climate issues, but I do not want to end up working for Schlumberger in Libya or Algeria or the like. My only other option, where I won't be living a hand to mouth existence is working as an energy trader (well, those are the only other groups that seem to recruit from my department).

So please try to bear with my naive questions, but are you advocating a march short and april long, in hopes that the spread widens?

I love the last bit about not being too greedy on that spread trade, if only Brian Hunter had booked some of what I am sure were enormous March/April spread profits in April-June. Bulls/Bears get fat, hogs get slaughtered?


I asked what you thought is happening near term because I had gone short at 4AM EST this morning at $7.11 since those early morning trades around $7.10 seemed totally inane to me and woke up at 9 AM to a nice $0.20 profit but I had thought the fibonacci retracement level was at $6.80 and so I was holding out for those prices. I was a bit worried when the price popped back up at the open of floor trading. Maybe, I shouldn't have been such a penny-pincher, but the fundamentals as you said look like total crap. I can't see one piece of even marginally good news except that the 3.4 SST El Nino anomaly seems to have peaked at around 1.25. The question I have is, is that all priced already? I hope you're right on $6.55, I think I will cover in the lower $6.70's.

You seem to know your stuff Comanche, I am so sick of reading Bloomberg reports where they have no idea what caused the price movement for the day.

What books/magazines/websites do you subscribe to (for natty and/or crude information) and how have you acquired your trading knowledge? (i.e. can you tell us more about yourself)

Thank you,
Gene
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Sorry, I meant March LONG April SHORT, with the thinking being that winter demand will increase and April is the first shoulder month so March will increase more than April and the spread widens with March further ahead of April than it is now?
 
Out of interest, when did it become the fashion for traders to talk as though they were Brooklyn cab drivers?

"Natty" = an adjective used to describe someone who dresses rather sharply.

"Natural gas" = a gaseous substance used for energy, and the subject of your post.
 
Quote from eugenie98:

I bet many of the NYMEX traders are from Brooklyn.

I'm from Brooklyn, so you wanna do sumthin about it? :p


http://www.doubletongued.org/index.php/citations/natty_1/
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Haha, good point! I've just noticed that since it got in the news, every man and his dog is saying "natty" nowadays, almost like an affectation. I'm just waiting for Hilary Clinton to start talking about how she made $100k trading "natty" and then I guess I'll have to start calling it that myself ;)
 
Ahh dear old carpet-bagging, abuse-loving, coattail-riding, hypocrite Hillary Clinton from my home state of NY.

next thing you know she'll ban cattle futures because they exploit the underclasses of America.
 
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