Commodities

[Aquarians]

I'm looking at commodities (ETFs) because it seems they're loosely correlated or completely uncorrelated with the index, so in these weird times it makes some sense trading them.

For those who say "buy index coze it will always recover":
1) If the index drops 50-75% it's hard to stay positive coze "it will eventually recover".
2) There are indexes who never recovered, like Japan's Nikkei-225. US index did so far, but then again, it was never so inflated as in these COVID & GameStop times. I wouldn't bet on it recovering if it drops significantly.

Bottom line, diversifying away from S&P 500 seems attractive but then again, what to choose? Coze 80% of the stocks out there are massively correlated with it anyways.

I'm looking into commodities but they surely must have some quirks.

 

[Aquarians]

Like here's how CORN looks like:

Unlike the stock index, doesn't seem much of a winning bet to buy and hold.
Is there a catch with commodities, like they have an ever-decreasing component in them (like VXX for instance)?

 

[IamTheCasino]

A, Niekki and Japan isnt the United States so not a good comparison

B, if the stock market actually crashes yours, and everyone else's, cash will be useless anyway. You really think billionaires will allow that? Lmfao. If it doesnt crash it will recover because again, the US has the biggest, well rounded, and innovative markets in the world, unlike the Niekki.

Some of you people are chicken littles. If you are really concerned dont buy gold ETFs buy physical gold and silver as a hedge.

 

[TimtheEnchanter]

As the dollar gets devalued all these will rally. [IMHO that is...]

 

[Nobert]

Like here's how CORN looks like:

View attachment 252718

Unlike the stock index, doesn't seem much of a winning bet to buy and hold.
Is there a catch with commodities, like they have an ever-decreasing component in them (like VXX for instance)?

So what do you want to do,
trade or buy and hold ?

If second option, then learn fundamentals & bottom fishing & beta becomes irrelevant.

 

[BKR88]

Is there a catch with commodities, like they have an ever-decreasing component in them (like VXX for instance)?

Contango.
Commodity futures are naturally in contango as they have storage costs that are priced into the futures.
ETFs will usually lag the front month futures contract, depending upon how they're structured.
CORN is better than some etfs in a bear market as it purchases futures in 3 different months as it tries to reduce the contango effect.
Front month corn needs to rise 55% to reach 2012 highs but CORN etf needs to rise 210% to reach 2012 highs.

 

[Aquarians]

Ok, so I think I was right in my "feeling" from looking at a few commodity ETF curves: something's fishy when ALL of them lose value consistently over a long time period. It seems there's a "contango" effect, a constant "friction" which causes these ETFs to lose money over time. Can't physically own the commodity except in a few particular cases like gold or silver, but corn or soybeans will both rotten in time and cost of storage would be even higher than the cost of rolling futures on them. And problem stems from rolling the futures: you lose money everytime you do that because future traders take advantage of the fact that buyers would rather buy future than spot.

So it looks like my involvement with commodities was very short, I'll say pass.

 

[Aquarians]

So what do you want to do,
trade or buy and hold ?

If second option, then learn fundamentals & bottom fishing & beta becomes irrelevant.

I have a buy and hold component in my strategy so this means commodity ETFs are out.

 

[BKR88]

Important to know how the etf is structured.
Look at 2 nat. gas etfs, UNG vs. UNL.
UNG is front month so does poorly in a bear market but better in a bull market.
UNL purchases 12 different months so does better in a bear/neutral market but not as well in a bull market.
Almost all commodity etfs work OK for swing trading but not investing. Pretty typical of any commodity, with a few exceptions like gold/silver.

 

[BKR88]

I have a buy and hold component in my strategy so this means commodity ETFs are out.

I've been holding CORN, SOYB, DBA etfs for months but have calls written against all positions to cover any decay from futures roll. I continue to roll up & out if I don't want to be called away. Calls are spread out over different months & strike prices. Options are pretty thin though in these etfs so don't plan on making too many adjustments.