Risk free ..Big Money

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de_cooky

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WTI contango trades are the talk of the oil trading world..At the height of recession when US was looking really weak the contango had swelled upto 7-8$ for the first two months and much more for furthur calender months..Big institutional traders ,possessng the financial muscle and thre expertise raked in millions of dollars off riskless trades..Cushing was tucked to the brim and VLCCs were hired to keep floating storage for months..BIG money was made..

Any expert opinions revealing the nuances of such trades...
 
oil contango arbitrage is basically buying the front month to take delivery of the physical, hiring a supertanker to put the oil in and store it whilst simultaneously selling a further out month with the view to keep the oil in the tanker and deliver it at the higher sell price.

Its risk free IF you can afford to store the oil and insure it etc, and IF you can margin the oil futures trades, which could require a fair bit of capital. A supertanker can hold between 2000 - 20,000 futures contracts - if your short futures on the sell, you still have to margin them which could be a huge amount of dough if price advances from your sell price, and bearing in mind once you've taken delivery of your oil, you're not hedged, you're naked short.
 
surely a supertanker can hold more than 20,000 barrels?, good work on the edit :p
 
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as i thought, quick google and a supertanker could hold about 15,000 contracts worth..(1.5mil barrles)
 
Why do big guys care bout margin requirements..It was a sure shot profit trade considering they locked in the freight charges . Even if we take into consideration the interest charges on margin finance it was still a windfall .. What other factors may have spoilt the party? Probably none..This I guess was a perfect example of how market produces windfall opportunity during times of peril..But just for the guys who have their eyes open and guts intact..
 
Hi All, I am pretty certain this is a riskless trade if you manage all the hurdles, do the proper calculation (it's confirmed by a well-known commodity guru frequent appearing on CNBC).

The question now is how small traders like most of us, can really take advantage of the situation when arises again in the future. Has anyone of you tried to contact those oil tanker owners like Enbridge?
 
I try Hedging = bullsh!t
Also Spreads = "
Price Strips = "
Strangles = "
Straddles = "
Butterflys = "


If you could pay one time not the margin , you will blown the account ......:mad:
DionysusToast said:
Quite.

Also - I called Hertz, Eurpocar and Alamo and none of them had a supertanker to rent.
Click to expand...
 
de_cooky said:
WTI contango trades are the talk of the oil trading world..At the height of recession when US was looking really weak the contango had swelled upto 7-8$ for the first two months and much more for furthur calender months..Big institutional traders ,possessng the financial muscle and thre expertise raked in millions of dollars off riskless trades..Cushing was tucked to the brim and VLCCs were hired to keep floating storage for months..BIG money was made..

Any expert opinions revealing the nuances of such trades...
Click to expand...

Gues who was one of the biggest players on this trade ?.. Goldmans!.. I dont know if it's true but I have heard that the devil himself is running Goldmans from the basement!:devilish:
 
Everyone was in this trade: JP, Phibro (i.e. Citi), Goldies, etc. For a bank, it's fundamentally a balance sheet trade and balance sheet became very cheap for energy desks at one point in 2009. Moreover, it's also a play on the dysfunctional conditions created by investors crowding into the USO ETF (ideal opportunities to enter the trade arise when USO, which is too big for the mkt, rolls). My 2c...
 
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