Isn't there a potential system in the differential/correlation between spot and futures prices?
Let's say wheat prices are in contango, couldn't you calculate the differential between the spot and November (or whenever) prices and place a buy on the spot price and a sell on the future if/when a substantial differential exists?
The theory in my head is that these prices may well go up or down but that eventually and especially towards the expiry of the future they would correlate more and more strongly and move towards each other.
I need to sit down and draw up a spreadsheet and chart of spot and future prices over the month before expiry for a few commodities and/or currencies and see how this pans out.
Is anybody else seeing what I am seeing or is this a no go from the start? Input welcome.
Let's say wheat prices are in contango, couldn't you calculate the differential between the spot and November (or whenever) prices and place a buy on the spot price and a sell on the future if/when a substantial differential exists?
The theory in my head is that these prices may well go up or down but that eventually and especially towards the expiry of the future they would correlate more and more strongly and move towards each other.
I need to sit down and draw up a spreadsheet and chart of spot and future prices over the month before expiry for a few commodities and/or currencies and see how this pans out.
Is anybody else seeing what I am seeing or is this a no go from the start? Input welcome.