1. Trading Futures Spreads - Basic But Important Strategy
"A basic and important strategy for commodities traders using spread trading."
By: Mark O'Brien, Cannon Trading Commodities Broker
Over my 20+ year career as a commodities broker, I have studied and traded a wide range of approaches to trading the futures markets. From candlestick formations to the commodity channel index, from condors to turtle trading, there’s an enormous catalog of tools and methods available for traders to consider.
One method I have noticed is surprisingly underrepresented among retail traders is futures spread trading, where a single position in the market consists of the simultaneous purchase of one futures contract and sale of a related futures contract as a unit. I call it surprising because some of the most invested players in futures trading – and arguably the most sophisticated – include large speculators and commercial firms who regularly employ spreads. This includes traders in the markets who often actually buy and sell the physical commodities we trade. Farmers, ranchers and other food growers along with food producers, petroleum companies who either drill for oil or natural gas or refine these products – or both, financial institutions with enormous holdings in treasuries, equities or currencies, mining interests and their buyers – all these areas of production and distribution employ spreads from time to time as an important aspect of their businesses. Indeed, spread trading is a fundamental and essential part of the commodities futures markets.
At the same time, despite the remarkable increase in interest and in the growth in the volume of the futures markets over the years, spread trading is typically dismissed by most other traders in search of a trading strategy. With so much attention focused on other approaches related to straightforward directional trading (and within that category, day-trading) it’s not difficult to see how spread trading can be overlooked.
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2. Hot Market: E-Mini S&P Futures Bulls Gain More Power
The U.S. stock index futures bulls have gained technical strength recently. See on the daily bar chart for the March e-mini S&P futures that prices are in a fledgling uptrend after producing a bullish double-bottom reversal pattern. There are now solid, early clues that the S&P e-mini futures have put in at least a near-term market bottom.
8:45 AM CST - Chicago PMI(Feb)
9:00 AM CST - Pending Home Sales(Jan)
FN: Mar 2,5,10 Year Notes(CBT)
Mar Gold & Silver(CMX)
Mar Platinum & Palladium(NYM)
Mar Rough Rice(CBT)
LT: Feb Fed Funds(CME)
Feb Live Cattle(CME)
Mar RBOB & ULSD(NYM)
Feb Fed Funds Options(CME)
Mar Lumber Options(CME)
9:00 AM CST - Construction Spending(Jan)
9:00 AM CST - ISM Index(Feb)
1:00 PM CST - Auto & Truck Sales(Feb)
2:00 PM CST - Fats & Oils(& Annual)
2:00 PM CST - Grain Crushings(& Annual)
FN: Mar Sugar-11(ICE)
Mar Orange Juice(ICE)
LT: Feb Butter(CME)
Feb Butter Options(CME)
Feb Milk Options(CME)
6:00 AM CST - MBA Mortgage Purchase Index
7:15 AM CST - ADP Employment Change(Feb)
9:30 AM CST - API & DOE Energy Stats
1:00 PM CST - Fed's Beige Book(Mar)
2:00 PM CST - Dairy Products Sales
FN: Mar RBOB & ULSD(NYM)
6:30 AM CST - Challenger Job Cuts(Feb)
7:30 AM CST - USDA Weekly Export Sales
7:30 AM CST - Initial Claims-Weekly
7:30 AM CST - Productivity-Rev(Q4)
7:30 AM CST - Unit Labor Costs-Rev(Q4)
9:00 AM CST - Factory Orders(Jan)
9:00 AM CST - ISM Services(Feb)
9:30 AM CST - EIA Gas Storage
3:30 PM CST - Money Supply
7:30 AM CST - Ave Workweek & Hourly Earnings(Feb)
7:30 AM CST - Nonfarm Payrolls(Feb)
7:30 AM CST - Trade Balance(Jan)
7:30 AM CST - Unemployment Rate(Feb)
LT: Mar Canadian Dollar Options(CME)
Mar Currencies Options(CME)
Mar Live Cattle Options(CME)
Mar US Dollar Index Options(ICE)
Apr Cocoa Options(ICE)
* Please note that the information contained in this letter is intended for clients, prospective clients, and audiences who have a basic understanding, familiarity, and interest in the futures markets.
** The material contained in this letter is of opinion only and does not guarantee any profits. These are risky markets and only risk capital should be used. Past performances are not necessarily indicative of future results.
*** This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts herein contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgment in trading!
RISK DISCLOSURE: Past results are not necessarily indicative of future results. The risk of loss in futures trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition.