Commodity option trading systematic
One of the reasons commodities are attracting new players and new strategies is that the markets are not as mature as equities. Also, with more and more institutional money flowing into commodities, both through exchange-traded funds ETFs and listed futures and options, managers are looking for new ways to generate alpha in commodities. According to estimates, about 15 percent to 20 percent of all futures trading occurs in commodities futures contracts.
Some commodity trading advisers, however, rely on a combination of strategies that involve human discretion as well as programmatic rules.
Nautical Capital in Boca Raton, Fla. Nautical currently trades three strategies — two discretionary strategies driven by the commodity views of the portfolio managers and one systematic strategy. The first discretionary strategy capitalizes on relative-value opportunities through inter-commodity and calendar spreads; the second is based on directional views and is implemented via options. The systemic strategy, Dynamic Commodity Trading System, employs trend-following and fundamental algorithms to determine long, short or flat cash exposure to 15 commodities.
There was a supply shortage, and the near-term March contract went from 9 cents per pound to peaks of 31 cents per pound, according to Carrier. Meanwhile, May sugar contracts were selling at a 10 percent to 15 percent discount on the March contracts.
If a system is designed to perform under a specific set of conditions, rules, and criteria, then that system ceases to do well if the conditions start to change. This is what we believe to be the root cause for the recent underperformance of systematic CTAs and strategies.
There are systematic CTAs out there that did well prior to , and have continued to perform well since then. Finally, it is important to know that an investment strategy cannot always be classified as either only systematic or only discretionary. This could mean a few things: Understanding the pros and cons of each keeps you prepared for the future.
Past performance is not indicative of future results. Futures trading involves substantial risk of loss. By no means is this newsletter offering any investment advice or suggesting to make any trade recommendations. Please consult an aiSource advisor prior to opening any managed futures accounts. What is Notional Funding?
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