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.
November was another positive month for the Season Spread and Option program. It was note, however, free of road bumps. One of our strategies cost us approximately -0.5% of our monthly profits during the last couple of days of the month. We were short soy bean oil futures spreads when unexpected news caused the market to move sharply to a new high.
“Under EPA quotas, refiners must mix 19.28 billion gallons of renewable fuel into the gasoline and diesel supply next year, up from 18.8 billion gallons proposed in May. Advanced biofuel, including biodiesel made from vegetable oil, will rise to 4.28 billion gallons from 4 billion signaled earlier this year.”
Soy bean oil is a key advanced biofuel, together with corn, so this news caused the market to move to new highs for the year.
We have several carry spreads in our portfolio, (short March and May and long June soy bean oil) and the movement in the fronts, (plentiful buying of the first and most active contracts) moved the March 2017 leg a bit more than the May 2017 and June 2017 legs. This movement is normal and we do not see any change in the forward curve. At the time of writing this newsletter all these spreads are back to our entry point.
We are still in the trade and hope to cover this position in late January or early February. The Seasonal Chart of the aforementioned trade is shown below. The black line represents this year while the red line shows the average over the last 5 years. The green line shows the 10 year historical average and the blue line shows the average over the last 15 years:
The market is still very volatile and the deviations from the historical average are extreme. Because of this, the markets are providing less opportunities than we are used to. We are spread traders so we trade seasonal deviations and pursue them back to the historical mean. Therefore, when the market moves far from the mean and fails to return to its historical average, it means that conditions are not favorable for us. This is happening now in the Live Cattle February and April spread. We would expect to see this spread move back to its average by the end of December, or the beginning of January. Therefore this position is not currently profitable for us but we are traders and therefore we must assume risk in order to potentially generate returns. Thus, we will continue to trade our strategies even if some of our trades are losing at present.
Below you have the chart for Live Cattle. The black line shows this year, whereas the red line shows the average over the last 5 years, the green line shows the average over the last 10 years and the blue line the average over the last 15 years:
I would like to wish you a Merry Christmas and a Happy New year. As always we thank you for your business and your trust in us.
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
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.