#WTI #RBOB simple crack spread #trade explained & trade example

In the oil industry cracking is the process whereby crude oil is separated into refined products.

In trading "Crack Spread" is the difference between the cost of the oil products such as heating oil, gasoline and the cost of oil from which these products were cracked.

"Crack Spread" is not really for retail trading because of liquidity and capital issues. However, a retail trader can trade "Simple Crack Spread” using pretty liquid /CL and /RB futures. 

/CL contract is for 1000 barrels of WTI oil and is priced in $USD/barrel; /RB contract is for 1000 barrels of RBOB gasoline and is priced in $USD/gallon. 

To price "Simple Crack Spread"  between 1000 barrels of RBOB and 1000 barrels of WTI in $USD/barrel one has to use the following   formula:

Simple Crack  Spread = 42*/RB - /CL.

$1 move of Simple Crack Spread price translates than into $1000 move of cash. TOS trading platform can be used for charting the formula.

In general Simple Crack Spread is positively correlated to macroeconomic strength and specifically to WTI trend. Typically summer is a period of a strong WTI-RBOB crack spread. Supply issues like caused by Colonial Pipeline fire in 2016 or by hurricane Irma in 2017 result in violent price upswings.

The trade posted here was  a bet on summer seasonality and current bull market in WTI:

Exec Time

Spread

Side

Qty

Pos Effect

Symbol

Exp

Strike

Type

Price

Net Price

Order Type

Crack

19.2398

5/4/2018 12:55

FUTURE

SELL

-1

TO OPEN

/CLN8

18-Jul

FUTURE

69.67

69.67

MKT

5/4/2018 12:55

FUTURE

BUY

1

TO OPEN

/RBN8

18-Jul

FUTURE

2.1169

2.1169

MKT

Exec Time

Spread

Side

Qty

Pos Effect

Symbol

Exp

Strike

Type

Price

Net Price

Order Type

Crack

19.3744

5/7/2018 15:00

FUTURE

BUY

1

TO CLOSE

/CLN8

18-Jul

FUTURE

69.8

69.8

MKT

5/7/2018 15:00

FUTURE

SELL

-1

TO CLOSE

/RBN8

18-Jul

FUTURE

2.1232

2.1232

LMT

Simple Crack Spread pair  trade requires abot $15000 USD per pair.
So far in 2018 this trade  resulted in $1300 of profit. In 2017 the profit from this trade was $4700 USD.

P.S. Never forget about risk management.

Commodity Investing : 10% #income #trade for elderly

My mother in law is an elementary school teacher in Taiwan. She is about to retire but suddenly the retirement in Taiwan became a problem. Recently the government employees were found to be "greedy people" and based on this discovery their pensions were decreased nearly by 50 %.  Now my mother in law is looking for sources of additional income and asked me to make a trial investment ($3600 USD) for her.

This is how I invested her money to get ~10%  of interest per year ( tastyworks trading platform was used to minimize trading fees) :
1. bought 200 SLV @15.6;   sold 2 Jan 18,2019 16 Calls @1.25; bought 2 Jan20, 2019 11Puts @0.04.
2. sold  1 Oct19, 2018 15.5 Put @0.83; bought 1 Jan19, 2019 11.5 Puts @0.04. That gives  ~ $400 of maximum profit in 300 days.

Since silver is at lows of the commodity cycle the income from this small-scale investment is going to work similar to real estate investing. 

+ $1000, flat platinum gold pair.

Instant gratification:

Exec Time

Spread

Side

Qty

Pos Effect

Symbol

Exp

Strike

Type

Price

Net Price

Order Type

Spread

415

8/15/2018 13:00

FUTURE

BUY

1

TO CLOSE

/GCZ8

18-Dec

FUTURE

1184.6

1184

LMT

8/15/2018 12:55

FUTURE

SELL

-2

TO CLOSE

/PLV8

18-Oct

FUTURE

769

769

LMT

The trade was posted live on twitter.

Long Platinum Short Gold, futures pair trade

Probably it is early but here it is 2*/PL -/GC futures pair trade:

Exec Time

Spread

Side

Qty

Pos Effect

Symbol

Exp

Strike

Type

Price

Net Price

Order Type

Spread

425.5

8/15/2018 10:23

FUTURE

SELL

-1

TO OPEN

/GCZ8

18-Dec

FUTURE

1189.5

1189.5

MKT

8/15/2018 10:23

FUTURE

BUY

1

TO OPEN

/PLV8

18-Oct

FUTURE

764

764

LMT

8/15/2018 10:23

FUTURE

BUY

1

TO OPEN

/PLV8

18-Oct

FUTURE

764

764

LMT

+$800, Algorithmic Day Trading SP500

Recently I posted the historical statistics of SP500 daily return.  It turned out that the Efficient Market Hypothesis is very close to reality in the case of SP500 day trading. Most of the time the probability of win is a randomly distributed variable and no chances for a  day trader to outperform the market. However, if optimized, "cut your losses early and let your winners run" algorithm has a theoretical chance to beat the market. Keep in mind that the real working algorithm needs more ingredients.
Below are the results (in /ES points) for the past two weeks of medved's proprietary day trading robot : 

8/2/2018	24
8/7/2018	0.5
8/8/2018	-4
8/9/2018	-4.25
Total:	16.25

The previous period was posted here.

short SP500 : entry #3

This is a continuation of the macro-trend trade. Rising rates and a bull market don't end up well together. The trading strategy is to sell out of the money naked call options. So far the trade produced  2 wins and 0 loss. Today I sold /ESU8 3000 Call which has 4% chance to end in the money.

Exec Time	Spread	Side	Qty	Pos Effect	Symbol	Exp	Strike	Type	Price	Net Price	Order Type
8/3/2018 14:24	SINGLE	SELL	-1	TO OPEN	/ESU8 1/50 SEP 18	/ESU8	3000	CALL	1.3	1.3	LMT

#silver : utilizing SKEW

Theoretically, a naked Put with a certain delta can be replaced by the same delta covered Call. Unlike SP500 selling Calls is more profitable in silver. Sometime Premium in Calls is 2-3x of that in Puts. Yesterday I converted seven contracts to utilize this difference:

Exec Time	Spread	Side	Qty	Pos Effect	Symbol	Exp	Strike	Type	Price	Net Price	Order Type
8/1/2018 13:04	SINGLE	BUY	7	TO OPEN	SLV	17-Jan-20	10	PUT	0.02	0.02	LMT
8/1/2018 13:02	STOCK	BUY	700	TO OPEN	SLV			ETF	14.51	14.51	LMT
8/1/2018 13:01	SINGLE	SELL	-7	TO OPEN	SLV	17-Jan-20	16	CALL	1.03	1.03	LMT
8/1/2018 12:59	SINGLE	BUY	7	TO CLOSE	SLV	18-Jan-19	16	PUT	1.61	1.61	LMT

Breakeven for this tranch is @13.90 now; max return is 100% on risk.