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Spot, Futures, ETFs?

  • #1
  • First Post: Aug 19, 2019 3:11pm Aug 19, 2019 3:11pm
I was reading up on some of the financial energy product offerings and was wondering does anyone trade all three?

It certainly seems like a requirement to trade/invest responsibly and thoroughly, is to have a deep understanding of how options and futures work.

Has anyone played them all at the same time? Are there any strategies edges in trading multiple products at the same time? Any pointers?
  • #2
  • Aug 19, 2019 10:07pm Aug 19, 2019 10:07pm
I don’t believe there’s any way retail traders can trade spot. When futures are far enough into contango hedge funds have been known to rent a tanker to store spot oil and sell the futures. It’s actually an arbitrage play, just a very difficult one to implement.

Neither ETFs or futures track spot perfectly. One futures contract just tracks where people think spot will trade at one point in time. Front month futures will be close to spot though so it’s a pretty reliable bet.

ETFs are usually based on futures contracts and are notoriously bad at tracking spot over longer periods. Unfortunately being long an ETF doesn’t necessarily mean you’ll make money if spot goes up. What you’re really betting on is what near month futures will do so it’s very very important to factor in the futures curve if you’re holding longer than a day.

With that said, ETFs do open the door to some unique strategies. Sometimes there are ways to exploit ETFs based purely on their unique characteristics. The short volatility trade during 2017 was a great example of this. Others have done well through capitalizing on levered ETF erosion. Excellent product knowledge is key so traders going this route will definitely need to read the prospectus and do a lot of homework to make sure the math is on their side.
Self-sufficiency is the greatest of all wealth. - Epicurus
  • #3
  • Edited 3:22pm Aug 20, 2019 1:24pm | Edited 3:22pm
Quoting Ef5
I don’t believe there’s any way retail traders can trade spot.
I apologize. I may have been using the term wrong. I was talking about some of the brokers that offer the OILUSD, BRENT etc...

Quoting Ef5
When futures are far enough into contango hedge funds have been known to rent a tanker to store spot oil and sell the futures. It’s actually an arbitrage play, just a very difficult one to implement.
Now that's funny!

Quoting Ef5
Neither ETFs or futures track spot perfectly. One futures contract just tracks where people think spot will trade at one point in time. Front month futures will be close to spot though so it’s a pretty reliable bet.


Quoting Ef5
ETFs are usually based on futures contracts and are notoriously bad at tracking spot over longer periods. Unfortunately being long an ETF doesn’t necessarily mean you’ll make money if spot goes up. What you’re really betting on is what near month futures will do so it’s very very important to factor in the futures curve if you’re holding longer than a day.
Thank you for the point of distinction here.. "being long and ETF doesn't necessarily mean you'll make money if spot goes up" as well as conceptual explanation.

Quoting Ef5
With that said, ETFs do open the door to some unique strategies. Sometimes there are ways to exploit ETFs based purely on their unique characteristics. The short volatility trade during 2017 was a great example of this. Others have done well through capitalizing on levered ETF erosion. Excellent product knowledge is key so traders going this route will definitely need to read the prospectus and do a lot of homework to make sure the math is on their side.
I'll have to research some of theses! Thank you for setting me in the right direction with the short volatility trades of 2017, example.

Thank you for stopping by and sharing your experience and wisdom Ef5! Are there any OIL ETFs that you've looked at recently? The incoming "anticipated" volatility should create and increase profitable trading opportunities....yes?
  • #4
  • Aug 20, 2019 2:38pm Aug 20, 2019 2:38pm
Quoting C8H18
{quote} I apologize. I may have been using the term wrong. I was talking about some of the brokers that offer the OILUSD, BRENT etc...
No need to apologize! lol

It sounds like you're talking about CFDs. They'll be based on front month, or some combination of front and next month futures.
Quoting C8H18
Thank you for the point of distinction here.. "being long and ETF doesn't necessarily mean you'll make money if spot goes up" as well as conceptual explanation.
You're welcome, I had to learn about that one the hard way. I've been burned trading USO and UNG in the past.

Quoting C8H18
Thank you for stopping by and sharing your experience and wisdom Ef5! Are there any OIL ETFs that you've looked at recently?
There are two strategies I might consider with oil ETFs.

1. Simply buying USO, or another oil ETF, and trying to make money based on roll yield. Since crude is in backwardation, if spot stays flat USO should go higher.

2. Take a small position shorting both WTIU and WTID which are 3x levered long and short oil ETFs. On any given day the gain/loss will offset so if WTIU is up 3% then WTID should be down 3%. In this sense you're mostly hedged. Both should erode slowly over time so you can make money from shorting both. Here are charts of each since inception:

WTIU
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WTID
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One is long and the other is short, but you see how both are actually down from where they started?

You have to be careful about this type of strategy. It should work over time, but a sustained trend can cause a serious drawdown so I'd only do this on a small portion of my account.

Quoting C8H18
{quote} I apologize. I may have been using the term wrong. I was talking about some of the brokers that offer the OILUSD, BRENT etc... {quote} Now that's funny! {quote} {quote} Thank you for the point of distinction here.. "being long and ETF doesn't necessarily mean you'll make money if spot goes up" as well as conceptual explanation. {quote} I'll have to research some of the! Thank you for setting me in the short volatility trades of 2017 right direction. Thank you for stopping by and sharing your experience and wisdom Ef5! Are there any OIL ETFs that you've looked at recently? The incoming "anticipated" volatility should create and increase profitable trading opportunities....yes?
There's always opportunity, with or without volatility. That's something beautiful about the financial markets; whenever you have an idea about something there's almost always some way to express it. If you don't think there will be volatility you can just sell options.
Self-sufficiency is the greatest of all wealth. - Epicurus
  • #5
  • Aug 20, 2019 3:36pm Aug 20, 2019 3:36pm
Quoting Ef5
{quote} No need to apologize! lol It sounds like you're talking about CFDs. They'll be based on front month, or some combination of front and next month futures. {quote} You're welcome, I had to learn about that one the hard way. I've been burned trading USO and UNG in the past. {quote} There are two strategies I might consider with oil ETFs. 1. Simply buying USO, or another oil ETF, and trying to make money based on roll yield. Since crude is in backwardation, if spot stays flat USO should go higher. 2. Take a small position shorting both WTIU...
LOL! NUE-BEE here!

I'm blown away and can't thank you enough for the quick and detailed answer! I've got my homework for the evening thank you Ef5!

How long have you been trading, what else do you trade? What does you're portfolio look like, without prying too much!

I really appreciate you taking the time to share Ef5. You're restoring my faith in the graciousness of humanity

Have you ever thought about mentoring or tutoring? Thanks again!
  • #6
  • Aug 20, 2019 5:25pm Aug 20, 2019 5:25pm
Quoting C8H18
{quote} LOL! NUE-BEE here! I'm blown away and can't thank you enough for the quick and detailed answer! I've got my homework for the evening thank you Ef5! How long have you been trading, what else do you trade? What does you're portfolio look like, without prying too much! I really appreciate you taking the time to share Ef5. You're restoring my faith in the graciousness of humanity Have you ever thought about mentoring or tutoring? Thanks again!
My pleasure C8H18, glad I could help! I haven't done any private tutoring, but I've taught some university students if that counts. I'm always happy to help out a fellow trader so if you have any more questions later feel free to ask.

I'm relatively new to energy, but I've been trading since 2005. Back then I traded everything, and made every mistake you can name. That made me very conservatively so now I only take trades after doing a ton of due diligence. Most of my money is dedicated to trading the S&P because I know it the best and think I'm least likely to make a mistake.

Lately I've been really really intrigued by trading nat gas. It moves based on the weather and I have a background in meteorology, data science, and trading so its pretty exciting from my perspective. I plan on putting together some models and we'll see if we can make some money.
Self-sufficiency is the greatest of all wealth. - Epicurus
  • #7
  • Aug 20, 2019 6:46pm Aug 20, 2019 6:46pm
Quoting Ef5
I don’t believe there’s any way retail traders can trade spot.
You're trading spot every time you fill up your gas tank! Leverage is limited though.
  • #8
  • Aug 21, 2019 2:58am Aug 21, 2019 2:58am
Quoting Ef5
{quote} My pleasure C8H18, glad I could help! I haven't done any private tutoring, but I've taught some university students if that counts. I'm always happy to help out a fellow trader so if you have any more questions later feel free to ask. I'm relatively new to energy, but I've been trading since 2005. Back then I traded everything, and made every mistake you can name. That made me very conservatively so now I only take trades after doing a ton of due diligence. Most of my money is dedicated to trading the S&P because I know it...
Your writing style IS "professor-like". I had my suspicions!

Extremely impressive history and you're exactly the kind of trader I was hoping to run into! I'll be sure to follow your posts and gather as much wisdom that I can! Thanks again Ef5! Really cool of you!

Quoting Goat
{quote} You're trading spot every time you fill up your gas tank! Leverage is limited though.
....just joking man! That was a good one
  • #9
  • Sep 19, 2019 11:42am Sep 19, 2019 11:42am
Quoting C8H18
I was reading up on some of the financial energy product offerings and was wondering does anyone trade all three? It certainly seems like a requirement to trade/invest responsibly and thoroughly, is to have a deep understanding of how options and futures work. Has anyone played them all at the same time? Are there any strategies edges in trading multiple products at the same time? Any pointers?
How about CFDs? They're almost perfect. There's just a little complication for us Americans. But all you need is a friend that you trust who doesn't live in the US to fund an account for you. The leverage is great, and that's it. Eezy peezy!
  • #10
  • Sep 19, 2019 2:40pm Sep 19, 2019 2:40pm
The important thing to look is also the TAX... In our country, SPOT is TAX FREE for natural persons... For other financial tools.. it become a nightmare and HEAVY tax.. and even after you might pay, you are never sure if you filled everything correctly and might be looking for some fine YEARS later, after you might already spent the profits or what was left of it...

But I would say it like this... TRADE as a mofo.. Doesn't seem to be much difference, regarding price prediction... Might be some differences regarding leverage, some costs.. but I would say, its best to TRADE on being RIGHT... and then hire someone to optimise your "harvest" strategy or change the different financial tools depending in what part of trading, component.. you might have the most juice... daily, long-term... precise, unprecise... IB style or daily high-lev trader style.. etc...

I still think, if one is a surgeon scalper and also maybe a good price Nostradamus (if this can be found in the same person; i doubt unless wizard).. SPOT wins hands-down Specially in countries where SPOT is tax-free... for private people (natural persons) that do not trade for others... Well for companies doing the trading... there is quite another story... TAX and bureaucracy burden... Also expensive to track all the changes in the law/tax... regarding that...
Can you afford to take that chance?
  • #11
  • Last Post: Sep 19, 2019 5:13pm Sep 19, 2019 5:13pm
Quoting vpn
{quote} How about CFDs? They're almost perfect.
Between wide spreads and shady broker tactics, CFDs are far from perfect.

Quoting auricforecas
The important thing to look is also the TAX... In our country, SPOT is TAX FREE for natural persons... For other financial tools.. it become a nightmare and HEAVY tax.. and even after you might pay, you are never sure if you filled everything correctly and might be looking for some fine YEARS later, after you might already spent the profits or what was left of it... But I would say it like this... TRADE as a mofo.. Doesn't seem to be much difference, regarding price prediction... Might be some differences regarding leverage, some costs.. but I would...
Yep, taxes really are an important consideration. In the US, futures are generally best for short term trades.
Self-sufficiency is the greatest of all wealth. - Epicurus
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