February 2013 +6.10% YTD 12.79%

Dear  Investor,

​February, 2013: +6,10% and  +12,79% YTD, therefore it is another very good month despite the fact that the seasonal fluctuations of the energy market do not work. Obama’s influence concerning the energy strategies for the coming years and the rise of the price of natural gas have caused that most of the spreads that we have do not work. What is more, now in the middle of March,  2013 I had to close the majority of these strategies for reasons of risk.

In today’s newsletter I would like to detail a bit more the way I work as there was quite an amount of confusion concerning the end of Seasonal Spread Trader with futures.

A Spread trader in the commodities market makes a purchase and sells futures with different months of expiry at the same time. (I buy May 13 corn and at the same time sell July 13 corn). In reality the only thing we look for is to operate on the spread existing between the futures.
Oftentimes one looks for a deviation from the mean of these products, an arbitration, but I am more specialized in seasonal fluctuations and in the changes of proportions between supply and demand in every season of the year. What I intend to do is make the most of stock accumulation or a peak of consumption by selling the futures of the weakest month and buying futures contracts for the strongest month. In using this approach to the market I am not looking for its directionality but rather only the relationship between the sharper and normal months depending on my position.  This is especially important to understand because these strategies work in rising or falling markets, too. If the market is rising my long “leg”  will rise more than my short “leg” , and in a falling market the sold ones will fall more than the bought ones as long as the relationships referred to in my initial strategy are maintained in terms of stocks and consumption.

A good example could be petrol for the Summer season (Driving season): buying futures of the months when businesses begin to accumulate stocks and covering the position with futures of the months when consumption is the lowest, and naturally, following the weekly development of stocks for crude and its derivatives. Another useful example could be the sales of hogs for April and the purchase of futures for June or July. In April the slaughters reach their seasonal maximum, that is, there is a lot of meat on the markets, which is a lot of supply compared with the months of June and July when the demand because of the barbecue season reaches its height.

As I explained to you earlier, these strategies do not consider the directionality of the market but occasionally, coincidentally, the future of a commodity is found to be in diversion. What is more we are entering a very clear period of seasonal fluctuations with these factors in our favor, knowing the fundamentals I very rarely intend to profit from market movements with naked options with a very clear stop loss always when the premium of an option doubles and with an objective of 60-70% of the value of the premium. These strategies in my portfolio are very rare and they also have a very strict risk monitoring.

In order to be able to work with seasonal fluctuations it is very important to know the fundamentals of the commodities markets very well and to know even better the factors which make them change over time and profit from these changes with future spreads.

In summary, one could say that I am a seasonal trader who knows the fundamentals of the commodities markets very well and one that operates with the intention of profiting from these factors with the simultaneous purchase and sales of future contracts for different months.

As always, should you need more information or clarification do not hesitate to contact me.

Gregory Placsintar 

Principal/Head Trader

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THE RISK OF LOSS IN TRADING COMMODITIES CAN BE SUBSTANTIAL. YOU SHOULD, THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.

Greg (Author)

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