Cotton - Front month very light volume

H

heech

Hi there,

I've been watching CT 10-09, and scratching my head wondering at the incredibly low volumes versus what ICE was reporting in their EOD data.

And then I finally realized all of the trading (by a factor of probably 20 to 1) is happening in CT 12-09.

10-09 doesn't expire for 2 months! Any idea why that might be happening? Is this typical for cotton? Why aren't people buying front-month and then rolling over into the 12-09 later in the year?
 
Oh wait a second...

<i>The underlying future for the September and November serial options is the December futures contract; the underlying future for the January serial option is the March futures contract.</i>

That's really interesting. Why's the September serial option based on the December futures contract...? That more or less solves my problem, because now I know I should be trading 12-09 like everyone else... I just don't quite understand it.
 
Quote from heech:
Any idea why that might be happening? Is this typical for cotton? Why aren't people buying front-month and then rolling over into the 12-09 later in the year?
More...
1) With cotton, October is a "swing" month. Fewer people are concerned with it. It's the same thing with grains. Traders tend to go from "old crop" July into the "harvest month" of November or December bypassing the other months in between.
2) As it relates to serial-options in cotton, I do not look at those. Stick with the months that correspond to the most active futures contracts instead, i.e. March, May, July and December. :cool:
 
Heech,

The only contracts you want to pay attention to in cotton are H, N, and Z, same with the grains (except substitute X for Z on beans and rice).

Unless spreading, stay out of those other months.
 
August and Sep beans are often referred to as the bastard months because they are in the middle of the old crop and new crop beans. I magint the October Cotton is similar.
 
Quote from caroy:

August and Sep beans are often referred to as the bastard months because they are in the middle of the old crop and new crop beans. I magint the October Cotton is similar.
More...
Scared me for a sec, because I'm actually trading Sep bean options and was underlying with the corresponding underlying. For a second I thought I might be using the wrong contract...

Looks like I'm ok there!

Thanks for the info, folks.
 
I wouldn't be scared of the Q9/U9 beans especially if you're just using it to hedge options.....its (Q9) is the front month so there is decent volume.

Get the historical data on the term structure and calculate the volatility for each front month and it will show you what time of year to take off for the ags.....
 
Q/U is boring...get out there and trade the Q/X! haha! But true...this year there is decent action in the old/news especially given the current tight supplies. I was just meaning that you want to trade the "key" months on there own rather than the "skip" months. ANY month works great in a spread though.
 
agreed....hoping that tight supply (thinking we're going to be well supplied this year) comment was sarcastic though! While any months work in conjunction for a spread; Q/X will take your money fast if not careful.....I've seen some of our guys take some nice hits there; correlation sucks across crop years.
 
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