Today I rolled over Mar Lumber to May contract. I've been using pit contracts even if CME launched electronic contract in late 2008. Pit trades really suck because I have no idea where the current bid/ask is and I don't know if someone (even my broker) is trying screw me.
During my last roll-over, I was holding Nov long and I sent 3 sell orders. After about a few mins later, it showed last price was at my sell, so I thought I got filled. In pit trading, usually the # of contracts doesn't really mean much because it's very liquid. I, then, went bought 3 Jan Lumber and I got filled because I saw last traded price was below mine, so someone also got filled below my price.
Another thing sucks about pit trading is you don't get confirmation immediately. It takes about 2-3 hours. Later I found that my sell didn't get filled, so I ended up holding 6 lots of lumber instead of 3. Furthermore, Lumber kept dropping and my on-going loss suddenly became -$3000+. Fortunately lumber came back up and filled my sell.
Long story short, I'm now more comfortable trading lumber in electronic markets. The bid/ask spread is still wide, but at least I can time when the spread gets smaller to roll over.
Lumber continues to drop and it's at the point where I would aggressively buy. I plan on buying 2 lots at a time from this point. Margin is only $1100 per contract.
Sold 4 Mar lumber at 142.5 (1 will offset 170 put at expiration)
Bought 4 May lumber at 153.025
As for natural gas, I'm still holding 1 long outright and 1 short Apr 4 put. I have an order to sell Apr 5 call for 0.34 (or $3400).
To be honest, I'm down quite a bit and it gives me a lot of pressure / headache. I looked at monthly charts on all commodities during 80s stock market crash / 2001 dot com bubble burst, but commodities don't seem to be affected. The tricky thing about this market is, it seems when indexes go lower, it triggers margin calls, which in turn forces liquidate other commodities first. Besides, it usually takes a while for commodities to turn around. It could spend a few 'years' basing before shooting higher. Hope I have enough money to hold on to. This strategy is definitely not for someone who's not patient.
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2 comments:
Nice, I didn't realize that lumber traded on globex too. I haven't been able to get quotes on it because I'm not subscribed to CME quotes...I think if I get in, I will just buy a contract, instead of selling a put...
I'm not sure about Natty Gas though...I just heard an interview with T. Boone Pickens and he said that Natty Gas was so widely abundant in the US. The only thing that I can think of is maybe the whole plan to become "foreign oil independent" may cause the demand for natty gas to increase, then again, I know nothing about how the energies trade.
You can get the live quote on Lumber at cme website:
http://elivestockrdc.cme.com:443/lumber_quotes.html
Note that March expires in 2 weeks, so I'd trade May (LBSK09), which also has the most open interest.
When commodities' price get so low, put's premium is not worth taking. Besides Lumber's option expiration is every two months instead of every month like oil or gas, so you have to wait for a long time and might miss the move.
Anyway, buying it outright it the best way to go at this level. You can then quickly sell a call option that's 10-15 pt away for 10 or so, if you want a quick money. You can always hold longer till 200ish. My ultimate target is around 300.
As for NG, I just play my plan. I'll sell 1 more put at 3.5, 3, and 2 more at 2 etc. What makes NG totally different from Lumber is it has volatility, so you can easily offset your risk by selling calls and puts. Also options expire every month, so more versatility.
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