Today in Commodities: Dollar Sets the Tone

Natural gas prices were higher by 7% today, we advised clients to take their positions off and book a profit on the overall trade. This time the hedge hurt instead of helped, but sometimes being conservative makes you less money, other times it saves you money. Clients booked a profit of $1200 on their January $6/7 call spreads and a loss of $400 on their November put protection; a total gain of $800 on roughly $3100 invested.

Change of plans on the Crude - we were expecting a dip to get clients positioned long but instead we’ve decided to get short buying January $80/75 put spreads today. A 23% appreciation in less than 3 weeks seems too much too fast.

Sugar prices were lower by 2.5% today. On a further break we will be looking to get clients long again. Cocoa should break in the next couple days if the dollar can garner a rally. As for currencies today it is far from a victory but the Loonie was lower by 2 cents today; we are short with clients looking for .9400 on the December contract. The Euro is showing signs of a top, ideally we would see a trade down to 1.47 in the coming sessions.

Equities were lower but still it is way too early to call a top. Clients remain short put spreads at a slight loss.

Grains were uneventful, still looking for an entry from lower levels in corn and wheat. Gold and silver could go either way so we will continue adapt to the ever changing market conditions. For those of you who are not clear, markets are volatile and I do reserve the right to change my mind if that’s what we feel is in our client’s best interest. We think gold and silver will be much higher 12 months from now but 12 days - who knows? There are just too many variables.

Treasuries were higher and although a bit shy of our objective; we advised clients to exit their NOB spreads at roughly a $850 profit per spread.

Live cattle were sideways but we did get a second consecutive close over 86.00 in the December contract. Continue to buys dips. Lean hogs broke lower as we anticipated; our objective is 51.00 on the December contract.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.

Comments

[rrdaniel:]

Yesterday:
>We prefer natural gas only because we feel we’re in the
>beginning stages of a move

Today:
>we advised clients to take their positions off and book a profit on the overall trade.

It seems that 'beginning stages of the move' on gas were rather
short lived; anyway, at least it was a pointer in the right direction.
Who knows, maybe it will continue up for a day or two.
The market is rather shaky, as you said - too many variables.

Oct 20 04:18 PM

[woodennickels:]

Can you explain how a hedge works again?

"This time the hedge hurt instead of helped, but sometimes being conservative makes you less money, other times it saves you money."

Oct 20 05:36 PM

[Matthew Bra...:]

In this example we had clients long January $6/7 call spreads in natural gas; a bullish play. They were at a profit but we did not want to leave the trade. So as opposed to exiting we advised clients to buy November $4.25 puts. The idea was if we came in Monday and natural gas prices were down we would make up the loss on the call spread with a profit on the puts. How it played out natural gas continued to move higher so we cut losses on our hedge (November puts) and exited the longs. The net result was less of a profit had we not done the puts.
Definition:
An investment made in order to reduce the risk of adverse price movements in a security, by taking an offsetting position in a related security, such as an option or a short sale.


On Oct 20 05:36 PM woodennickels wrote:

> Can you explain how a hedge works again?
>
> "This time the hedge hurt instead of helped, but sometimes being
> conservative makes you less money, other times it saves you money."

Oct 20 05:48 PM

[rick12345:]

As I suspected there are way more bears in the market than bulls, so naturally it follows that everything is lower.
The unfortunate situation unfolding at present is that Arab states would rather sell their oil to the Chinese than the US, so I'm expecting major developments over the coming months. It's quite interesting how the rest of the world has been able to do business using diplomacy instead of war. Perhaps the US could learn something from their communist brethren.

Oct 20 09:10 PM

[Dan Schmeidler:]

Thank you, Matthew, for your postings. At appears that China (and other economies with massive amounts of U.S. denominated reserves) are currently (the logical) willing buyers of Oil (in exchange for the greenback) at these levels. But these nations have (at least until recently) been mostly dependent on foreign economic growth (a la the "foreign" consumer) in order to spur their own economic growth. And until we see definitive proof that these nations can economically expand on their own, I would not be betting on continued higher commodity prices all across the board.

P.S. Love the new spell-check feature in the comment section. Thank you Seeking Alpha.

Oct 21 12:22 AM

[Dan Schmeidler:]

Shoot! The above should read: "It appears ...". Sorry.

Oct 21 12:31 AM

[Aricool:]

great articles! Keep up the good work. Playing commodities is a lot like predicting the weather, but inverted; i.e., short term random noise, but long-term more predictable. The Nat gas trade seems to have reduced itself to a singe variable- cold weather, which saved it from collapse. So, it is entirely driven by weather predictions now, which is a very tough trade b/c they are wrong 50+% of the time beyond 3 days.

BTW, how much (cold) weather premium do you think is built into the grain complex now? And if winter turns out to be average, will global (i.e., China/India) demand pick up the slack? I own JJG and GRU from ~ 13% lower, but am timing when to add to my positions.

thanks again,
Ari-

Oct 21 09:39 AM

[jeffgroove:]

Change of plans on the Crude - we were expecting a dip to get clients positioned long but instead we’ve decided to get short buying January $80/75 put spreads today. A 23% appreciation in less than 3 weeks seems too much too fast.

Ballsy contrarianism, and yet the japanese bank sumitomo(i believe) said the dollar would lose even more value in the coming months compared to the japanese yen.

Oct 21 12:21 PM