tag:blogger.com,1999:blog-35364652.post1734886184683093516..comments2024-03-22T10:29:59.088-04:00Comments on Quantitative Trading: Trading a platinum-gold seasonal spreadErnie Chanhttp://www.blogger.com/profile/02747099358519893177noreply@blogger.comBlogger12125tag:blogger.com,1999:blog-35364652.post-91413534882988165902011-02-10T13:34:49.967-05:002011-02-10T13:34:49.967-05:00David,
Cointegration is a general test to apply to...David,<br />Cointegration is a general test to apply to another spread if you don't possess any specific fundamental information about the 2 legs. If, on the other hand, you know something about soybean economics for e.g., then you may be able to profit from a unusually high or low crush spread.<br />ErnieErnie Chanhttps://www.blogger.com/profile/02747099358519893177noreply@blogger.comtag:blogger.com,1999:blog-35364652.post-31297843075390290922011-02-10T09:29:14.695-05:002011-02-10T09:29:14.695-05:00Dr Chan,
Very interesting article, which raised a...Dr Chan,<br /><br />Very interesting article, which raised an issue with spreads, about which I have yet to find a good resource. This is the method in which you construct them. In this article he is matching dollar Big Point Value. In another article from your blog by Paul Teetor, about the RB/CL spread, he cointegrates. With the crush spread, the amount of product is considered. I'm wondered if you had any thoughts on the differences of these and other methods?<br /><br />Great Blog!<br /><br />DavidAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-35364652.post-44269755148151066962007-08-19T08:53:00.000-04:002007-08-19T08:53:00.000-04:00Pablo,You are right. I was a little confused when ...Pablo,<BR/>You are right. I was a little confused when I traded this spread myself. From a market value point of view, this spread is certainly not dollar-neutral. (1 GC contract worths about $6,650, 2 PL contracts worth about $12,260.) Your ATR calculations can also be corroborated by studying the mean absolute daily returns of the respective contracts. The mean absolute returns are about the same, but because the market value of the long PL side is double that of the short GC side, the dollar risk is almost equivalent to owning one contract of PL outright, as you pointed out. I don't know why the spread has to be constructed this way, but if you construct it the dollar-neutral way, it is far less profitable both historically and in my real trading test.<BR/><BR/>Thanks for pointing out this subtlety!<BR/>ErnieErnie Chanhttps://www.blogger.com/profile/02747099358519893177noreply@blogger.comtag:blogger.com,1999:blog-35364652.post-20966882530345531582007-08-18T20:42:00.000-04:002007-08-18T20:42:00.000-04:00Thanks for the info. Please forgive me because I'm...Thanks for the info. Please forgive me because I'm a little new to spread trading, but I did some sleuthing on this PL/GC spread. I read the SFO article, and then went to the NYMEX website, and as you said they require 2 PL to 1 GC. I find this odd however because after taking a 504 day ATR of the price of each commodity (~$9.77 for GC) and (~$17.00 for PL), and multiplying each by their native multipliers (100 and 50 respectively), you get $977.00 = 1 ATR move for GC, and $850.00 = 1 ATR move for PL. The ratio between the two is approximately 0.87 (PL/GC). So when you double up on the PL to get the margin discount from the NYMEX, they are actually allowing you to have a semi outright position in platinum! Does this sound correct? I see the exchange is trying to equalize the ounces, but it doesn't makes sense to me in terms of risk.Unknownhttps://www.blogger.com/profile/06125613743286460902noreply@blogger.comtag:blogger.com,1999:blog-35364652.post-44601841290331827442007-08-18T09:12:00.000-04:002007-08-18T09:12:00.000-04:00Hi Pablo,Thank you. I did most of my research on M...Hi Pablo,<BR/>Thank you. I did most of my research on Matlab. It can be an expensive software to use though. For these simple spread models, an Excel analysis can often suffice.<BR/>ErnieErnie Chanhttps://www.blogger.com/profile/02747099358519893177noreply@blogger.comtag:blogger.com,1999:blog-35364652.post-83958773736676459582007-08-18T00:47:00.000-04:002007-08-18T00:47:00.000-04:00Hey nice blog. Read your short paper on Kelly posi...Hey nice blog. Read your short paper on Kelly position sizing. Good stuff. I would like to do some investigation and backtesting with spreads. How do you examine these relationships historically with software? I've found it difficult to do with some of the most common backtesting platforms.<BR/>-PaulUnknownhttps://www.blogger.com/profile/06125613743286460902noreply@blogger.comtag:blogger.com,1999:blog-35364652.post-30016361058852550802006-11-26T18:51:00.000-05:002006-11-26T18:51:00.000-05:00Dear taggartgalt,
You made a very good point. The ...Dear taggartgalt,<br />You made a very good point. The maximum drawdown trading this spread since 2000 is $10910 (in 2001), which means the maximum margin requirement is $11,653. The interim risk is considerable, even though the final P/L of that year is positive.<br />ErnieErnie Chanhttps://www.blogger.com/profile/02747099358519893177noreply@blogger.comtag:blogger.com,1999:blog-35364652.post-28222958668182289332006-11-25T15:24:00.000-05:002006-11-25T15:24:00.000-05:00Interesting observation, but what is the risk of t...Interesting observation, but what is the risk of the spread? What is the maximum margin required to carry the the trade during entire study period and during an average year? Thank you.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-35364652.post-21066291284729679172006-11-25T12:21:00.000-05:002006-11-25T12:21:00.000-05:00seems like an arbitrage between different calendar...seems like an arbitrage between different calendars. other than gold oil consumption is another commodity that is common between english and other calendars like indian and chinese.. would be interesting to see if an arbitrage opportunity exists between calendars as similar factors come into play.. here's an example: people travel a lot for thanksgiving weekend in US consuming more oil/gas whereas this doesnt happen on other calendars..<br /><br />a very interesting article and something that makes sense to me as i know the pattern of gold buying during festival seasons in india..Unknownhttps://www.blogger.com/profile/01436870644608327578noreply@blogger.comtag:blogger.com,1999:blog-35364652.post-69859152913122879952006-11-25T00:34:00.000-05:002006-11-25T00:34:00.000-05:00My email is Ceas15@gmail.com.
Thanks for your help...My email is Ceas15@gmail.com.<br />Thanks for your help.<br /><br />CesarUnknownhttps://www.blogger.com/profile/14115430196916091137noreply@blogger.comtag:blogger.com,1999:blog-35364652.post-53704460745689721072006-11-24T20:36:00.000-05:002006-11-24T20:36:00.000-05:00Dear Cesar,
Thank you for your comments. I find r...Dear Cesar, <br />Thank you for your comments. I find recently that the beta version of this blogging software does not allow magnification of images. If you send me an email, I can email the image file to you.<br />ErnieErnie Chanhttps://www.blogger.com/profile/02747099358519893177noreply@blogger.comtag:blogger.com,1999:blog-35364652.post-26770318967215596662006-11-24T13:31:00.000-05:002006-11-24T13:31:00.000-05:00Dr. Chan,
I recently came across your blog and re...Dr. Chan, <br />I recently came across your blog and really enjoy it. <br />For the PL-GLD article I am unable to see a larger image of the graph. I was wondering if you could look into it or it might just be my comp.<br /><br />Keep up the good work.Unknownhttps://www.blogger.com/profile/14115430196916091137noreply@blogger.com