Recommendations for Commodities Forums

[dfwjf92jfd 40]

Hi all -

I'm looking for the "SteadyOptions of Commodities" - a site for discussing commodity futures and options trades (particularly grains, metals, and energy). Does anyone have a recommendation for a forum with quality discussion (and that takes risk management seriously)? 

[RapperT 336]

We are close to launching a service that fits this bill.

We approach our futures trading from a trend/momentum perspective and have a few mean reversion strategies as well.

Edited December 28, 2017 by RapperT

[zxcv64 752]

@RapperT, can you pls also send me a PM regarding this? Cheers.

[Twiga808 13]

While there is the adage "it's not what you trade it's how you traded it" it is true. I think discussions about using the tools and techniques of SO can only reinforce that which we are applying to stocks.

[ETFoption 2]

Can a group of us get a commodities SO started since the stock and index SO basically is closed off to new members?

Edited December 29, 2017 by ETFoption

[RapperT 336]

IM not sure how actively Kim trades futures (but obviously dont want to speak for him).  Most futures trading is directional in one way or another.

[RapperT 336]

Also, there is a forum for discussion already but it’s not really used 

[sroast 5]

i will offer my 2 cents on the commodities topic. i welcome comments from @RapperT and @cuegis two members with experience in futures. After a year of trading grain futures, i thought i understood the grains. Five years later, i realized i still had a lot to learn. 40 years later- the grains still surprise me at times. there are too many factors effecting price for me to go into detail. i have no intention to open any dialogue with members- i just say do not invest anything you cannot afford to lose.

[dfwjf92jfd 40]

Thanks all for sharing your thoughts. I'm most interested in selling options on commodities, as I believe it gives you more room to be wrong than straight futures - we all know the dismal record of retail commodity investors! It also provides diversification away from US equities, which is very appealing. I was particularly influenced by the book The Complete Guide To Option Selling. The authors write at length about the virtues of selling options on commodities as opposed to equities: 

• Diversification
• Lower margin requirements (obviously, this is to be treated with extreme care)
• The ability to sell much farther OTM options for an equivalent amount of premium compared with equities

I found their case to be pretty compelling. I've done a number of these trades and have read a ton of materials but am doing it in a vacuum - the ability to discuss and exchange ideas with talented traders (who actually trade, rather than just talk) is just so important and something that can't really be replaced through research.

[zxcv64 752]

1 hour ago, dfwjf92jfd said:

• Diversification
• Lower margin requirements (obviously, this is to be treated with extreme care)
• The ability to sell much farther OTM options for an equivalent amount of premium compared with equities

These are the exact reasons I am interested in this. Are people happy enough to post their current trades on the futures thread, so that we can get this kick started?  I am a novice when it comes to commodities, or futures, and will willing do the same once I get started.

[cuegis 683]

I'm very happy to hear people who are beginning to "see the light! I started trading in 1980, right after finishing college. I bought a seat on the Nymex, which at that time only had Heating Oil, Platinum, and Potatoes.

 

Gold, and Silver were the hottest things at the time, so platinum was basically a proxy for gold. There were no exchange traded options on commodities, on any commodity exchange until 1982.

 

I soon, got a seat on Comex, and traded gold, silver, and copper. Then, a seat on the Coffee, Sugar, and Cocoa exchange (now it is NY board of Trade). I traded commodities futures, then options, as a market maker, on the floor, for 12 years, before I ever once bought or sold a stock, or stock option.

 

I never even heard the word "earnings" for the first 12 years I was trading professionally. That was 1992 when I got a seat on the AMEX, which was basically all equity options, and we invented the SPY at that time. Which was the first ETF (I think). But that was then.

 

Let's look at now. Everyone here has a good, solid understanding of options, and many of the strategies that are used here work very well. But, as the past few posts have shown, the "retail" equity option arena is now a very crowded one. And there are only so many ways to approach things.

 

I gained an early advantage in my commodities options backround, bacause, unlike stocks, each option expiration is based on a different underlying futures contract. Some are very stable, like gold.

 

But, when you get into things like Crude, or the energy products, or crops, there is a lot of backwardation, and contango situations. This dynamic prepared me for the VIX,and volatility products, which also have different underlyings, and can be in contango, then shift to backwardation. We have not seen any backwardation in the Volatility products, especially VXX?VIX etc. because we have been in a straight up bull market in equities for nearly a decade.

 

But many commodities can ,very quickly swing back and forth from contango to backwardation, or even more perplexing, a combination of both. Anyway, as a practical matter....I have found that I can, as the norm, receive a lot more premium, under "normal" conditions, than I ever could with equities, and it is a smaller arena, with much more opportunity for an edge. For example, when I do delta neutral, premium selling strategies (usually iron butterflies), I can collect 70% to as much as 80% of the distance between strikes, without having to go out more than 45-60 days.

 

And, I know this defies the "science" of options but, it seems like longer dated options on commodities, lose value,at a pace that is just as fast as much shorter dated equity options. Also, you will rarely collect much more than 50% premium, of the distance between strikes, in equities, with 40-50 DTE. In order to collect 65% -70% , in equities, you either need a huge down day, with a big spike in IV, or go much further out in time.

 

Also, with commodities, there are SO many , extremely liquid products, that are totally un correlated., with many in long term trading ranges. . Gold and crude have been my favorites. They have been in trading ranges for a long time and only in the past 2 weeks, have broken out of those ranges. So, I had to change my approach from delta neutral premium selling, to more directional approaches. Anyway, I happy to see people noticing the benefits of these products. But, not too many,, I hope!

Edited December 30, 2017 by cuegis

[cuegis 683]

On 12/29/2017 at 10:09 AM, sroast said:

i will offer my 2 cents on the commodities topic. i welcome comments from @RapperT and @cuegis two members with experience in futures. After a year of trading grain futures, i thought i understood the grains. Five years later, i realized i still had a lot to learn. 40 years later- the grains still surprise me at times. there are too many factors effecting price for me to go into detail. i have no intention to open any dialogue with members- i just say do not invest anything you cannot afford to lose.

Dosn't that apply to everything?

Is gold any different than GOOG?

[RapperT 336]

i think he is making that point that the notional value is such that an average joe retail trader can blow up a lot more quickly with futures than with most stock or index oprions

Edited December 30, 2017 by RapperT

[zxcv64 752]

19 minutes ago, RapperT said:

an average joe retail trader can blow up a lot more quickly with futures than with most stock or index oprions

Would it then be better for the average joe trader to trade options on futures rather than the futures themselves?

 

[RapperT 336]

16 minutes ago, zxcv64 said:

Would it then be better for the average joe trader to trade options on futures rather than the futures themselves?

 

there are pros and cons to both depending on the strategy and one's account size.  generally speaking, smaller accounts would be better off sticking options.

Edited December 30, 2017 by RapperT

[cuegis 683]

48 minutes ago, RapperT said:

i think he is making that point that the notional value is such that an average joe retail trader can blow up a lot more quickly with futures than with most stock or index oprions

It is the same exact thing with SPX vs SPY. You just do more or less of them according to how much you want allot to the trade.

It's not the futures contract size that is what could cause greater risk.

It is the traders lack of understanding of the contract value size so they can adjust accordingly.

[cuegis 683]

30 minutes ago, zxcv64 said:

Would it then be better for the average joe trader to trade options on futures rather than the futures themselves?

 

It's the same as stocks.

How much can I lose if I am short AMZN vs how much can I lose if I am long an AMZN put?

If you use the underlying, you have unlimited risk.

Whether it is commodities , or stocks, using options can create defined risk.

This applies to ALL traders, not just average Joe's

[RapperT 336]

 Of course risk can be defined, im not disagreeing with that. 

Margin requirements (with some exceptions) are much lower with futures.  That's my point.

[RapperT 336]

for those of you following the thread, you can read up on SPAN margin rules to understand how futures differ from options in this regard,

This is not my opinion, from a probabilistic standpoint, a novice trader would be more likely to blow up sooner trading futures than options.  This doesnt mean  futures should be avoided, just need to do your homework like anything else.

Edited December 30, 2017 by RapperT

[cuegis 683]

30 minutes ago, RapperT said:

 Of course risk can be defined, im not disagreeing with that. 

Margin requirements (with some exceptions) are much lower with futures.  That's my point.

Yes. They are much lower with futures.

They operate on a different margining sytem,with different rules.

But,the risk is not with the margins, it is with not taking the time to learn how something works before putting real money into it.

Also, are we talking about futures, or future options. Those also, are two very different animals.

All you have to do is take the time to understand how the margining works and it is no different than stocks.

I'm assuming that , if someone understands a very complex subject like options, well enough to , at the very least, do the kinds of trades that are done here, then they are certainly smart enough to learn how futures , and futures options margins work.

If you understand that, then the risks are the same, if you want them to be. It is up to you,the trader.

[RapperT 336]

Just now, cuegis said:

 

,the risk is .....not taking the time to learn how something works before putting real money into it.

 

agree.