December Heating Oil / Unleaded gasoline

[Andreas]

I have been watching the December Heating Oil/Unleaded gasoline spread. It seems it is trying to make a bottom here. There are positive divergences in RSI and MACD, momentum is still negative but rising, Slow Stoch is turning upwards from oversold.
By the way this is not a spread for the undermargined trader, about $2700 per spread.

Best regards,
Andreas

 

[bgold]

I am afraid the spread is beyond me. Where does it trade, NYMEX? I can't find the ticker is eSignal or on NYMEX website.

I do think, though, that just like the other energy products HO may still have a lot of downside. fe OI is rising in a falling market!

 

[Andreas]

Yes, it trades on NYMEX. And of course HO has downside. So has Unleaded. But that is exactly the beauty of spreads. You do not have to worry about the individual contracts, you only want to know if they are widening or narrowing. This is a seasonal spread which is rather late this year. Normally Heating oil starts gaining on Unleaded gasoline about end of August, after the driving season in the US finishes, and everybody starts stocking up on heating oil for the winter.

 

[bgold]

How would one set it up? Is there an instrument? I couldn't find it on NYMEX website. You are expert on spreads? I saw an earlier wheat spread post (Kansas vs Minn?).
Wheat indeed tumbled. 340 as we speak. HO, NG, KC, OJ, CC continue fall while S (as you mentioned) is on verge of breaking out to new highs.

Meanwhile, Si and GC are puzzling! a long legged Doji - rickshaw man pattern in Gold. Gold doesnot seem to be as bullish as everybody makes it out to be.

 

[Andreas]

Toad,

You enter a spread trade by contacting your borker, or enter your trade online as follows: Buy 1 Dec03 Heating oil, Sell 1 Dec03 Unleaded gasoline. These kind of spreads you would always enter as a limit order, in this case for example as 0.45 premium heating oil. You get filled as long as the spread does not exceed that limit. Unwinding the spread would be done in reverse order.
I would not call myself an expert on spreads, but spreads are what I almost exclusively trade. More in grains and livestocks, but sometimes also in softs and energies.

Best regards, and good trades,
Andreas

 

[JonnyT]

Andreas,

May I enquire why you trade spread?

Thanks

JonnyT

 

[Andreas]

JonnyT

I traded a lot of outright futures before. My results where mixed I must say, and basically I discovered the following. I found out that those traders that consistently made money over many years did either of two things. They specialized in one or two markets and traded nothing else than that, or they traded spreads. Everybody has his/her own style of trading of course, but for myself trading spreads was the best way to consistently make money in trading. An advantage of a lot of spreads is the strong seasonality, which if used in the right way, can give you really an edge. After a while you know after which spreads to look over the year, and which ones are the real money makers.
There are still quite few of the small speculators who trade spreads (the big players know the secret), that's why you hear and see far less about this way of trading futures. Speaking for myself, I would not like to trade the outrights anymore.

Best regards, and have a good weekend !
Andreas