CL Spreads
- Thread starter shep1487
- Start date
Well, about all of the intra-market spreads like calendars are exchange-supported, so execution is not an issue. There is one market ticket DOM price ladder and the fill is internally matched at the exchange. Inter-market spreads are another matter - other than Nymex or ICE Cracks and CBOT yield curve you are stuck with legging them manually or using automation.
I have some of my clients practicing the legging using a market Sim environment. TT Pro or CQG IC is about $1800 per month to lease. The IB TWS has a combination order router that I used for stocks a couple of years ago, and I know that it can be set up for futures.
Personally, I'm pretty good at legging spreads, and I like to control my exchange order messaging. But some spreads can be quite 'chippy' - metals and energy especially.
I have some of my clients practicing the legging using a market Sim environment. TT Pro or CQG IC is about $1800 per month to lease. The IB TWS has a combination order router that I used for stocks a couple of years ago, and I know that it can be set up for futures.
Personally, I'm pretty good at legging spreads, and I like to control my exchange order messaging. But some spreads can be quite 'chippy' - metals and energy especially.
Thanks guys!
I looked at the website of those brokers: RCG, Advantage, Crossland.
I downloaded the onyx trading tool for RCG, but wasn't able to see the inter-commodity spread feature.
The only promising front-end tool is X_trader which Advantage supports. But they want $700 a month (per market) for it, which is over my trading volume. I don't plan on trading that much.
One question, how do you guys deal with margin when legging a spread? I can leg spreads at IB, but it won't recognize them as proper spreads and doesn't give me the correct margin for them. That's why I am looking for a broker that will let me enter the order as a spread. But its starting to look like most brokers don't offer this service to their small retail clients
I looked at the website of those brokers: RCG, Advantage, Crossland.
I downloaded the onyx trading tool for RCG, but wasn't able to see the inter-commodity spread feature.
The only promising front-end tool is X_trader which Advantage supports. But they want $700 a month (per market) for it, which is over my trading volume. I don't plan on trading that much.
One question, how do you guys deal with margin when legging a spread? I can leg spreads at IB, but it won't recognize them as proper spreads and doesn't give me the correct margin for them. That's why I am looking for a broker that will let me enter the order as a spread. But its starting to look like most brokers don't offer this service to their small retail clients
Quote from lemeeeplay:
Thanks guys!
I looked at the website of those brokers: RCG, Advantage, Crossland.
I downloaded the onyx trading tool for RCG, but wasn't able to see the inter-commodity spread feature.
The only promising front-end tool is X_trader which Advantage supports. But they want $700 a month (per market) for it, which is over my trading volume. I don't plan on trading that much.
One question, how do you guys deal with margin when legging a spread? I can leg spreads at IB, but it won't recognize them as proper spreads and doesn't give me the correct margin for them. That's why I am looking for a broker that will let me enter the order as a spread. But its starting to look like most brokers don't offer this service to their small retail clients
You should try CTS4 with advantage, They offer calendar spreads and inter market spreads, it is not the most profesional but is ok
greg
It depends if they are exchange supported spreads. I think there are very few platforms that allow you to spread inter-commodity but most should allow you to trade calendars and option spreads with recognized margin...unless you're trying to leg in. We have plenty of retail clients trading the exchange supported energy calendar's.
The most commun inter commodity spreads are tradeble trough cts4... Crak spreads, Wti Brent.. Wheat Corn.. Live cattle /lean hogs.. and son on..
The only problem I found is that you are not allowed to build synthetic spreads..
Also you have to leg in to the Kc wheat/Cboe wheat..
Hope it helps...
greg
The only problem I found is that you are not allowed to build synthetic spreads..
Also you have to leg in to the Kc wheat/Cboe wheat..
Hope it helps...
greg
@bone @local you guys are providing valuable info. on spreads.
I Highly appreciate an answer from any of you as you guys know this stuff very well.
Here is a question I have regarding March/April spread trading on 2/14/11 which is trading at $4.25 .
what it takes to sell April oil now and buy March month and take phisical delivery of march month and store it in a ship and deliver it at a month later.
seriously at $4500 per contract , if you have a 10k barrels ship rented it and after all the cost of say $1 for this one month it is a profit of
$3500 x 10k = $3.5 millions
seriously what is the math here.
why Goldman , Morgan stanly and all other big hedge funds can not do this ??
Maybe there's not enough tankers to go around??
get one from europe/asia , all oil tankers are idle there as Brunt is trading $103 nobody is storing.
and we have still one month time to bring tankers as delivery is 1 month after the contract close.
deduct another $5 million for brining ships from far places
deduct another $5 million for financing ( interest paid on this huge money, you pay per contract full money that is $85,000 for oil delivary )
... still $25 million profit .
This whole thing may not be as this simple as it sounds? if so market efficiencies won't let this happen.
one explanation is lots of this trading volume is intraday , if one started accumulating for eventual 10k contracts for MARCH ( and selling 10k for april ) the spread won't be at this level , spread may drop from $4.5 to $3 or below ..
- another explanation is Physical delivary Limts per comapny etc.. These hedge funds can't they have some dummy companies setup for taking this delivery and have multiple of them for this kind of oil storage purpose time to time ??
I Highly appreciate an answer from any of you as you guys know this stuff very well.
Here is a question I have regarding March/April spread trading on 2/14/11 which is trading at $4.25 .
what it takes to sell April oil now and buy March month and take phisical delivery of march month and store it in a ship and deliver it at a month later.
seriously at $4500 per contract , if you have a 10k barrels ship rented it and after all the cost of say $1 for this one month it is a profit of
$3500 x 10k = $3.5 millions
seriously what is the math here.
why Goldman , Morgan stanly and all other big hedge funds can not do this ??
Maybe there's not enough tankers to go around??
get one from europe/asia , all oil tankers are idle there as Brunt is trading $103 nobody is storing.
and we have still one month time to bring tankers as delivery is 1 month after the contract close.
deduct another $5 million for brining ships from far places
deduct another $5 million for financing ( interest paid on this huge money, you pay per contract full money that is $85,000 for oil delivary )
... still $25 million profit .
This whole thing may not be as this simple as it sounds? if so market efficiencies won't let this happen.
one explanation is lots of this trading volume is intraday , if one started accumulating for eventual 10k contracts for MARCH ( and selling 10k for april ) the spread won't be at this level , spread may drop from $4.5 to $3 or below ..
- another explanation is Physical delivary Limts per comapny etc.. These hedge funds can't they have some dummy companies setup for taking this delivery and have multiple of them for this kind of oil storage purpose time to time ??
@local you are providing valuable info. on spreads.
http://www.elitetrader.com/vb/showthread.php?s=&postid=3092901#post3092901
appreciate answer for my above question posted to @bone and you .
http://www.elitetrader.com/vb/showthread.php?s=&postid=3092901#post3092901
appreciate answer for my above question posted to @bone and you .
Re H/J crude spread,
At 4.25, taking delivery and redeliverying against the J should lock in a profit, essentially the cost of borrowing the capital to finance the trade and the interest rate that it offers (storage costs remain fixed, only the interest component of the carry changes). The question then becomes why a fund, for example, is not taking advantage of it and assuring themselves a profit. The logical explanation is that they can't, that is they cannot stand for delivery thereby defaulting on the first leg of the spread. Other posters have suggested that the market is merely searching for a level that will encourage execution of this trade. But if you can't stand for delivery, it does't matter what the spread is, you still can't stand for delivery. From this perspective the contract is in my mind undeniably broken. The nearby essentially becomes meaningless in terms of a hedge for the long and in fact provides little in the way of price protection. It is only a matter of time until the long will look for an alternative source of price protection. The exchange recognizes the implications of not being able to take delivery and is trying to increase storage at the delivery point. I think it may be too little too late. Longs are only going to roll at excessive levels for so long, this has been 2 years in the making. OTC products may provide an alternative.
Regards, local
IV, the forward curve pricing implications as it relates to the energy markets is far more complex than simply calculating delivery, basis, and carry differentials.
It is not unusual for the electricity and hydrocarbon forward curves to price beyond the carry and basis costs.
The current pricing structure in crude is largely a byproduct of the improved equity price structure, with some elements of political risk and a healthy dose of dollar currency replacement thrown in for good measure. The fact of the matter is that we are back-stroking in crude oil supply. Look at the PADD data on the DoE and API websites. Refining demand is down about 5% YoY, and storage and barge facilities are filled beyond capacity. The Cushing delivery point rack and storage capacity has been filled for some time. Long position interest holders are dumping near-term obligations. Financial longs are rolling their positions, hence the huge contange.
There are loads of examples where Nat Gas basis (Transco Z6, etc. etc. in the winter) and Electricity basis (FTRs and the Inc/Dec markets) prices way way way beyond basis/carry. Seasonals and force majeur/equipment failure can create instant changes in the forward curve dynamic. Look at what a hurricane can do to the Nat Gas curve in October.
You have to consider demand and the physical constraints to meet that demand. It's way more complicated and multi-dimensional than a grain offloading point on the Illinois River.
It is not unusual for the electricity and hydrocarbon forward curves to price beyond the carry and basis costs.
The current pricing structure in crude is largely a byproduct of the improved equity price structure, with some elements of political risk and a healthy dose of dollar currency replacement thrown in for good measure. The fact of the matter is that we are back-stroking in crude oil supply. Look at the PADD data on the DoE and API websites. Refining demand is down about 5% YoY, and storage and barge facilities are filled beyond capacity. The Cushing delivery point rack and storage capacity has been filled for some time. Long position interest holders are dumping near-term obligations. Financial longs are rolling their positions, hence the huge contange.
There are loads of examples where Nat Gas basis (Transco Z6, etc. etc. in the winter) and Electricity basis (FTRs and the Inc/Dec markets) prices way way way beyond basis/carry. Seasonals and force majeur/equipment failure can create instant changes in the forward curve dynamic. Look at what a hurricane can do to the Nat Gas curve in October.
You have to consider demand and the physical constraints to meet that demand. It's way more complicated and multi-dimensional than a grain offloading point on the Illinois River.