Best way to short Orange Juice
- Thread starter yabz
- Start date
In all seriousness, have you looked into what it would take to arb spot and futures for lumber? After reading your post last night I looked at the specs, which were as clear as mud about who gets to choose where it's delivered and how much shipping is. You clearly have been doing this particular market for a while so I thought you might have figured out if it's doable or if despite the inefficiency of the market either the transaction costs are too high or it's ultimately efficient with regard to spot?
The short squeeze must be delicious...
JSOP.. limit up and not moving means the ceiling for that day has been established and cant move so for example, let's say sugar is 8.00/lb and the daily limit is 75 cents. There is a strike at some port (actually cocoa is a better example since 80% is made in ivory coast so more prone to spikes ) and the contract explodes to 8.75, it can't move because the entire world is 8.75 bid, aka "limit bid", there might be 500 contracts at limit bid and maybe some people will sell into that so u might see 20 contracts trade at 8.75 but it is still limit bid. The next day, the new price is 8.75 with new limit up and down +-.75 cents... so let's say strike is still going on and there is a short squeeze, the new limit bid is 9.50 and the whole world is 9.5 bid on sugar.. so for the 2nd straight day it is locked limit up and so on.... btw, this was the rule on floor.. no clue what it is now.... so no... the worst thing u wanna do is put on a condor there BUT vols must be thru the roof and u might get lucky and after the hysteria it settles there weeks later when your condor expires. BUT in limit cases, the markets are so wide bec the locals can't lay of the risk.
it reminds me. my father, of a blessed memory, was short the egg market. he nearly had railroad cars of eggs being delivered.
I been trading commodities since mid 80s, the biggest lessons I have learned is you need to be well capitalized, and once you are well funded, you should be intelligent to know markets you can't hedge or hedge with not many options available, there is a chance you be buying the underlying or needing to have it to sell, limits in these markets are notorious and there is zero ways to buy insurance. I have seen friends get wiped out from just having a few contracts and get hit with over ten straight days of "Limit" up/down. So when you have that "need" to put a gun to your head and possibility to lose your family, home and your mind, trade lumber and orange juice. It is far more sensible to trade lumber companies that have chart similar patterns of underlying than go bankrupt.
Unless, it is like making 20 year highs/lows and you want to go counter and very well funded to sustain drawdown, you make your own decisions, otherwise somewhere in the middle it is a game of chance.
Handle123 very good advise on using the stocks are surrogate ... more liquid, + some tight correlation?...although oj is hard coz the OJ line of business is prob just a small part of a company's total lineup.. The only pure play I can think of is Hersheys for cocoa/sugar
I was actually looking for the opportunity if you were well funded precisely because it's not readily available to retail and may be small enough to do with low 7-8 figures but also small enough that it's not worth it for anyone big enough to arb it out. It sounds like a very inefficient and illiquid market with the delivery enough of a pain that there might be some risk free arb opportunities between the spot and various forwards, especially since storage costs are so low for lumber (vice say OJ). I'd see the potential limit up/down as the key to making this work since it limits the max movement and potentially washes people out.
Markets as we all know were made for commercials and I believe except in perhaps the way I do occasionally trade Lumber and OJ, once in, I never add on cause the risk is way way beyond what I think is reasonable drawdown. We can learn much of Hedge fund managers that drawdown is number one ahead of profits, keep it under ten percent and most years you can beat Indexes. There are many other more reasonable opportunities that have options I rather trade and be able to add on a dozen times in long term. But regardless of these markets or optionable commodities, I stay in for the 75% of the nine year range, always keeping adjusted breakeven stops after rollover. I have no bias other than chart, and being it is automated, have no idea cept on weekends, what is going on. Keep life in trading as boring as can be, then you have a good method.
It once cost me $4,000 back in the 80's for not getting out of a cattle long in time, broker was brand new, and so was I for commodities, don't think wife be happy with all the cattle eating her rose bushes, but would have kept neighbors away, LOL.