Futures curve based alpha strategy In an Merrill Lynch commodity report

Quote from Soon2Bgreat:

If a contract needs to be rolled 3 days before the 15th calendar day of a month that doesn't necessarily mean that's when most participants will roll it, nor does it tell you what position they need to roll (if they even will) - that's where looking at OI can help you determine what position to take and when. I'm sure each market has its nuance too.

I've seen these types of strategies/products from other banks, but it's not to say that's what ML is doing, nor is that to say they would have the same parameters. Just what I think they could be doing based on what you've said.
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What products from other banks? Could you please give some pointers? I can take a look and keep you guys updated...
 
Quote from mizhael:

What products from other banks? Could you please give some pointers? I can take a look and keep you guys updated...
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Ok, the first step might be to identify all futures you want to trade and when they are scheduled to roll.

If you have coverage at MS, I would also ask them, I'm sure they've done some work in this area.
 
Quote from mizhael:

What products from other banks? Could you please give some pointers? I can take a look and keep you guys updated...
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Barclays, for one. ... Now could you actually <i>contribute</i> to the discussion -- some of the 'research' and 'updates' you're forever telling us you'll share? Would be a nice break from the constant stream of queries and requests.
 
Quote from mizhael:

Futures curve based alpha strategy

In an Merrill Lynch commodity report, they mentioned about a futures curve-based alpha strategy.

It's a systematic trading strategy.

It looks attractive...however, being a proprietary strategy, they didn't give any further details...

Anybody could kindly please point me to how this strategy possibly works?

I am interested in doing a backtest on this type of curve-based strategies, and I will post some results...
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I haven't seen this report, but you could "dig in" to the data in order to try and replicate the strategy. It's not a tough concept, if you think about it intuitively.

Here are your steps:
1) aggregate forward vectors for various commodities
2) "fit" vectors, or interpolate if you've only got a few contracts
3) note the steepness(invertedness) of these fitted/'terp'd vectors
4) test the impacts on various markets during times of extreme (you define a thresholding parameter) steepness, inversion, or flatness all at various lead/lag lengths
5) create a strategy based off of your results, and avoid overfitting

Have Fun
 
Quote from mizhael:

Futures curve based alpha strategy

In an Merrill Lynch commodity report, they mentioned about a futures curve-based alpha strategy.

It's a systematic trading strategy.

It looks attractive...however, being a proprietary strategy, they didn't give any further details...

Anybody could kindly please point me to how this strategy possibly works?

I am interested in doing a backtest on this type of curve-based strategies, and I will post some results...
More...

It means their customers (smart money) are expecting high volatility and possibly a drop in commodities. The alpha startegy tries to remove beta by long/short allocation and to capture alpha, usually excess retuns over some index like S&P 500, based on complicated backtest results using proprietary indices. The allocation usually takes place monthly with daily controls for excess volatility above a certain level. See this index for example:

https://index.db.com/dbiqweb2/index/db_Commodity_Harvest_10

These startegies are used when customers do not want straight beta exposure to a market.

It may also be an indication some expect a double dip and another dollar rally with commodities falling.
 
Quote from intradaybill:

It means their customers (smart money) are expecting high volatility and possibly a drop in commodities.

These startegies are used when customers do not want straight beta exposure to a market.
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True enough, but as they say, "securities are sold, not bought." The main driver is that the banks/brokers want to differentiate their commodity-index offerings -- add some special sauce -- so their salestraders have a better soundbite for institutional clients. You could say commodities have become commoditized -- all the banks offer products now.
 
There is a number of "alpha" strategies that different banks offer, the best suite in the interest rate world probably comes from DB. In general, these strategies offer fairly simple "statistically probable" payoffs. E.g. stupid buy-write, straddle or strangle selling have already been covered and can be replicated. Lots of people used to want these as principal protected structured notes or CPPIs.
 
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