FIN 376: Trading Futures Spreads -- 12/1/2015

1. Trade a 3:2:1 crack spread.
2. Trade a 1:1:1 crush spread.
3. Trade an NG calendar spread (where you are trading the storage spread and convenience yield.)

Record the prices at which you traded and calculate the refining margin for the crack and crush spread. After a week or so we'll close the trade and calculate the closing refining margin (and our profit/loss). However, upload the prices at which you traded and the refining margins to the D2L dropbox today, and we'll upload the prices at which you closed the contracts later.

Also be sure to trade liquid contracts (look at volume and open interest). You'll probably want to use front-month contracts.

You can buy or sell the 3:2:1 crack spread, meaning either:

- buy 3 crude oil, and sell 2 gasoline and 1 heating oil
- sell 3 crude oil, and buy 2 gasoline and 1 heating oil

Similarly for the 1:1:1 crush spread you can either:

- buy 1 soybean contract, and sell 1 soy meal and soy oil contract
- sell 1 soybean contract, and buy 1 soy meal and soy oil contract

Be sure to read this post about the crush spread: http://www.complete-markets.com/2012/11/fin-376-trading-crush-spread.html

For the calendar spread, you buy NG for delivery one month and sell NG for delivery in another month.

FIN 376: 2 Assignments: Trading 1 and IBrokers Intro

See the IBrokers assignment here:  http://complete-markets.com/wp-content/uploads/2014/09/IB_IBrokers_Intro.html

Trading assignment:

In groups of 2 or 3 you should complete the following trades and questions.  During class show me you have completed your trades using the Account Management  section of your IB account. You will answer the questions at the same time you show me your trades.

Trades:
1.  Buy 327 shares of RHT at the market.
2.  Short 41 shares of AAPL at the market.
3.  Use a limit order to buy 500 shares of ECA at the lowest price you can (while still executing the trade).  The group who buys ECA at the lowest price will get a bonus.
4.  Use a limit order to sell short 80 shares of GS at the highest price you can (while still executing the trade).  The group who shorts GS at the highest price will get a bonus.
5.  Place a stop loss order on your RHT shares.  Place the order such that it is unlikely to be executed - so I can see it in your pending trades.
6.  Place a stop loss order on your AAPL shares.  Place the order such that it is unlikely to be executed - so I can see it in your pending trades.

Questions:
1.  How large, on average, is the bid/ask spread on EGAS.  If you buy and sell $10,000 worth of EGAS how much will the total transactions costs be (commissions and the spread paid to the market maker)?
2.  How large, on average, is the bid/ask spread on NEE.  If you buy and sell $10,000 worth of NEE how much will the total transactions costs be (commissions and the spread paid to the market maker)?
3.  How many shares would you have to buy to increase EGAS’s ask price by $0.05?
4.  How many shares would you have to buy to increase NEE’s ask price by $0.05?

New Working Paper: How Consistent are the Judges of Portfolio Performance?

I posted a new working paper HERE. It is a short letters type paper---so it is a quick read. In the paper we show four standard portfolio performance measures (Sharpe Ratio, Jensen's alpha, Information Ratio, and Treynor Ratio) all rank portfolios consistently (all measures have a preference for portfolios with a greater number of stocks).  The implication is, it doesn't matter which portfolio measure you use, each will afford a very similar ranking for a given set of portfolios.

Streaming the World Cup in HD for free: Thanks to Univision

You can watch the World Cup live (or should I say 'en vivo') at Univision here: http://deportesenvivo.univision.com/.  Of course, the play by play is in Spanish. If you want to English play by play, a Bloomberg article has a work around.

I just listen to the Spanish announcers -- if you know a bit of Spanish you can generally get the idea of what they are saying.  And anyway, they are much more fun to listen to when a goal is scored.

The Widowmaker NG Calendar Spread

This is the spread as of Tue Jun 17 21:07:38 2014. The spread remains in the lower half of its range given expectation that gas in storage will rebound.

widowmaker

The widowmaker spread is the difference between NG for March and April (March less April). It gets its name from being fairly volatile, usually in response to changes in working gas in storage and cold weather (late winter storms).