Introduction This post is the first in a series of posts on deferred calendar spreads in the general commodities universe. A calender spread is where we take opposing views on different parts of the futures curve of the same commodity. We define a bearspread by taking a short and long position in the front and deferred part of the futures curve respectively. A bullspread takes the opposite view, a long and short position and in the front and deferred parts of the curve respectively.
Introduction In a previous post we have tried to debunk long only commodity investing. The main arguments why it does not work over long time frames is because of the curve structure associated with commodities that have to be stored in warehouses or silos. Below we show the annualised return of long only positions consisting entirely of the commodity shown as a function of percentage of time spent in backwardation.
Introduction In this write-up, we explore how the front month price and time to expiry of the front-month contract can be used to model the C UZ spread.
Seasonalality Using a similar methodology to the Calendar Spread Seasonal Entries and Exits post, we study the roll adjusted seaonal behaviour of the C UZ spread.
The plot below shows the continuous and roll adjusted C UZ spreads since 2000.
1 Introduction 2 Roll Adjusted Prices 3 The Role of Roll Yield 4 Sugar Spread Volatility vs Roll Yield 5 Remarks 1 Introduction The raw-refined sugar spread, SB vs QW, is one of our bread and butter processing margin trades. Raw sugar in the form of sugar cane or beets have to be refined to get the normal white sugar we are all used to. In the Sugar Trading Manual - Cost of production the author adds a fixed cost of USD 65/t which equates to their estimate of the world average cost of upgrading raw sugar to refined sugar in autonomous refinerries.
1 Introduction 2 Side of the bet 3 Size of the bet 1 Introduction One of our main flavours of commodity alpha we like to harvest is carry. We make profit from carry by taking a bet that the shape of the commodity futures curve will become more contango or remain uncahnged. Commodity futures curves are divided by obstacles to intertemporal arbitrage. The costlier the storage, the greater is the division and the variability of carry.