We are now in the last quarter of the year. Our Seasonal Spread and Option strategy is up YTD 6.35%. Although it has been a positive year, we are beneath our anticipated return thus far due to the conditions for seasonal strategies not being optimal. Below, you can see a comparison of our strategy with the performance of the SP 500, the Agricultural Trader Index and the Diversified Trader Index Since 2009
(Past performance is not indicative of future results):
The above presentation is for informational and comparative purposes only. It is intended only for use by those who are knowledgeable about such comparisons. The index or indices selected to generate the above comparison is/are not available as directly investible product(s). Generally, no individual can purchase an actual index as an investment holding for his or her portfolio. All index comparisons should be considered with the intent to evaluate differences between a singular trading strategy against a designated benchmark.
2016 – Last Few Quarters
In the last few months we saw some of our principal markets, such as grains and meats, make some extreme moves. In regards to grains, our strategy has performed very well this year. Production levels of grains have been very high in recent years. This situation has caused grain prices to be at very low prices compared to the last few years. In regards to meats, the situation is similar. Recently, live cattle futures have been trading under $100. To find the same situation one would have to look back to 2010. In 2014 cattle futures were trading at $160. If we look at the hog market, the situation is even more drastic. In 2014 hogs were well above $110 and now they are struggling to stay above the $40 mark.
Price changes and strong market trends do provide traders with a lot of opportunities but we are not a directional focused Commodity Trading Advisor. Trading seasonal spreads with markets showing extremely low or high prices is more difficult than it is with prices at their averages or norms. Therefore, we must put a lot of emphasis on the leverage we take and how we manage our risk. So, managing risk and portfolio volatility is our main focus. Of course we have to take risk in order to get achieve some profit, but it is very important for us to manage our risk reward ratio.
One promising area currently is the energy market. We believe there are some good opportunities here with market conditions that may favor our spread trading style.
2016 – The Last Quarter
As we mentioned before, we see some good opportunities in the energy markets and also with Eurodollars. We expect the US Federal Reserve to raise rates but until that decision is made, we will take advantage on the short and long end of the forward curve.
We are putting some spreads on meat contracts based on deviation from the historical mean. We expect the market to turn back towards its historical averages by the end of November and beginning of December. Also, we see some good prices available allowing us to set up same short live cattle spreads for the beginning of the next year.
With grains, as happened last year, we will start entering into defensive strategies should drastic movements occur during the planting season. We aim to take profits if there is a problem during the plantation, which is often the case as seen over the last few years (late plantings, floods, too cold or too hot during the planting season, etc.). We currently have open positions in the corn market and at the end of this quarter, we are likely start placing bean positions as those contracts are already showing positive signs for our strategy.
GPAM is glad to announce that it has received its first allocation from an institutional allocator, with a few more currently in the pipeline too. We are really pleased to receive increasing interest from professional traders and allocators in our futures spread trading strategy.
As always if you have any question please do not hesitate to contact us.
Thank you for your interest and continued trust.
— Gregory Placsintar
— Miguel Sanz Castello
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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.