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Valyooo (99.63)

Commodities trading?

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January 13, 2011 – Comments (25)

I am in this stupid finance club at my school...I thought it would be good, but it sucks, all we do is listento executives talk about how great their company is.  Anyway, theres a 2-3 week contest where we trade commodities with fake money...I signed up, because you can win money or an internship.  I know probably half the kids will do it, and out of half of those kids I probably know more about trading than atleast half of them.  So thats 25%...I figure I could get lucky and beat those 25%...plus maybe I will learn something. Does anybody know any good commodities trading strategies I could use for this contest?

25 Comments – Post Your Own

#1) On January 13, 2011 at 6:31 PM, Pennyperson (< 20) wrote:

Sure RJA =)

http://www.youtube.com/watch?v=rjrpzOgGg1Y

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#2) On January 13, 2011 at 6:58 PM, summitclark (28.39) wrote:

Well if its play money, and your going for maximum returns in a short time period.  Pyramid your contracts, leverage up like crazy, and flip a coin on a commidity....

Well don't flip a coin, but just put big bet on whatever you think will move.  I would go with silver, and food commidts.

Nat gas can make you a killing or be a widow maker, big time moves there as well.

best of luck

-andrew

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#3) On January 13, 2011 at 7:06 PM, Valyooo (99.63) wrote:

Hmm....that is what I suspected.  I will probably leverage up as much as possible and choose natty gas.  The chart looks nice, and february is usally a bullish month for NG.  Plus its been lagging for a while, and oil is higher, the oil to gas price is ridiculous.  Silver starts to lag around this time of the year, so I think I will do that.  I don't really know much about futures though, so I am not sure what you mean by pyramid my contracts.

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#4) On January 13, 2011 at 7:23 PM, ChrisGraley (30.25) wrote:

It's tough because of the short time-frame, but If I were buying right now...

#1 would be rice.

#2 would be sugar.

#3 would be rubber.

#4 would be corn.

#5 would be soybean oil.

The safe bet would be to put it all in rice, but given the short time-frame, I'd put it all in rubber.

Rubber has already had a run, but the increase in car demand and record rains in rubber producing companies should keep the squeeze on supply.

Good luck on your contest

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#5) On January 13, 2011 at 7:28 PM, Valyooo (99.63) wrote:

Thanks Chris.

I was also thinking 1) Cotton due to the bad crop this year due to snow in the south 2) shorting OJ due to the recent spike 3) long oil because its on a tear 4) tiny bet on NG, even though it probably won't do anything

Why do you put sugar over corn?

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#6) On January 13, 2011 at 7:37 PM, Speculatormaster (< 20) wrote:

Sugar and Corn are equal good, because alternative energy fuel ethanol in brazil is made from sugar cane and in United States is made from corn so will up equal, Mexicans use much corn also and, the worlds use much sugar, so may be for that reason he claim sugar has more chances.

World vs Mexicans

World win, but for me are equal weight

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#7) On January 13, 2011 at 7:51 PM, Pennyperson (< 20) wrote:

Corn over sugar

Rice over Rubber

NG over soybean oil

 

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#8) On January 13, 2011 at 7:53 PM, Pennyperson (< 20) wrote:

And OJ is in Jail (I think) still

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#9) On January 13, 2011 at 7:53 PM, gman444 (29.11) wrote:

You might check out palladium, which is in the middle of a very nice spike.  IMO, uranium could break out at any time, and I like natgas too.

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#10) On January 13, 2011 at 7:56 PM, ChrisGraley (30.25) wrote:

The reason that I like rice and sugar over corn and soybeans is because while all are in short supply, the emerging nations are in much better shape than the western nations. They demand more sugar and rice as food consumption than corn or soybeans.

Just about everybody is having inflation, but the emerging nations can tolerate it a little better.

Just about all AG commodities are good choices though. The one that I think I wouldn't buy is cocoa. Inflation will lower chocolate demand (its a luxury) and suger prices will increase chocolate costs. Prices will go up for chocolate as the demand is dropping.

 

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#11) On January 13, 2011 at 8:07 PM, Pennyperson (< 20) wrote:

Ane how much sugar bi-products are made from corn Chris?

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#12) On January 13, 2011 at 8:10 PM, Pennyperson (< 20) wrote:

(and) - 2 key boards sucks

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#13) On January 13, 2011 at 8:16 PM, Pennyperson (< 20) wrote:

We go from rice too chocolate =)

All in fun = flip a coin.

Keep us posted Valyooo Hope you win!!

BTW-1st rec was a joke ;)..hope you took it that way

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#14) On January 13, 2011 at 8:49 PM, anchak (99.86) wrote:

By Commodities trading - you are meaning futures contracts on CBOT .....

Look at past futures data - and pick something that trends - without having jagged whipsaws.Concentrate on 1 or 2 at max -especially uncorrelated - like Corn/Wheat with EuroDollar or some other currency - if the rules will allow

 

Search for "Way of the Turtle" or Turtling rules- these were legendary Futures traders - 

 

Go to cftc.gov  and download and analyze the COT reports for the commodity you picked.

 

Keep it simple - understand your risks - and units you want to trade - ie manage your leverage - and jump on a trend and hope it works!

 

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#15) On January 13, 2011 at 8:58 PM, ChrisGraley (30.25) wrote:

Your not buying corn syrup or corn derivatives when you are buying sugar contracts penny. Don't get me wrong, I really like corn too, but I like sugar better for the reasons above.

Also, I'm not really into ethanol demand for sugar or corn. It seems that hybrids and electrics are winning the transportation battle and food shortages are going to kill ethanol subsidies. An exception to that would be in Brazil. Brazil has plenty of domestic food and seems focused on Ethanol from sugar. I agree that it's a coin flip given the short time-frame but most commodities will rise in the long term especially AG commodities. Rubber has momentum right now and I can see that momentum accelerating.

BTW did anybody else notice that the guy that is up to his eyeballs in silver, didn't reccommend silver?

I think silver is due for a short term drop, followed by a steady long term run.

I hope all this helps. Also somebody else mentioned Palladium. I just read something recently that Russia is having a hard time supplying China's demand for Palladium. That might be the short term pop that you are looking for, but do some DD on that one because I haven't done any.

 

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#16) On January 13, 2011 at 9:55 PM, TheFoolishEdge (22.61) wrote:

Since it's a contest and it's only play money, my advice would be to take highly leveraged positions.  Also, prepare assumptions and a drafted trading plan if your professor asks for more information on your trading strategy. 

I would take a look at oil or natural gas because there will be some movement in the numbers in the next few months.  Natural gas usually has volatility but oil can also be a surprise. 

Since it's play money, here's my suggestion:

Crude oil 75 May 2011 put options are around $500 per contract--currently futures are at $94

There is a good chance that crude will drop in the next few weeks, supplies exceed last year, inventories of distillates and gasoline are also high, China will make more moves on their currency, weather in the northeast is predicted to be cool but lighter on the snow in the next few weeks, there are also other factors but it's already a long post. 

Possible trading strategy:  trade on events and information (ex. inventory reports are weekly and could provide a spike that will give strong returns for your contest)

Example:  Buy 8 May 2011 $75 puts--when trade shows strong profit sell 4 -- look for a price shift and ramp up on a different price point of the same monthly option that will increase leverage (reason: increased leverage could provide increased returns for your ontest, also, a different price point will help with taxes ( the tax strategy will help if you are explaining your trading strategy to your professor or potential employer))

Sorry for the long post--

 

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#17) On January 13, 2011 at 10:05 PM, TheFoolishEdge (22.61) wrote:

Finance clubs at school aren't always bad--they can be good for networking, a discussion topic on interviews, and a line of a resume.

Good luck on the contest. 

 

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#18) On January 13, 2011 at 10:28 PM, valunvesthere (21.57) wrote:

The value of commodities is set by the agreed price(s) by buyer and seller or was it by commodities traders?

Well anyways many mentioned Brazil. Mexico, Russia, China and left out India. Does anybody know B.R.I.C?

BRAZIL

RUSSIA

INDIA

CHINA

Does B.R.I.C. have the economic might to move commodities prices?

Valunvesthere

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#19) On January 13, 2011 at 10:52 PM, Valyooo (99.63) wrote:

Don't apologize for post length...the longer the better

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#20) On January 13, 2011 at 11:00 PM, Pennyperson (< 20) wrote:

Possible trading strategy:  trade on events and information (ex. inventory reports are weekly and could provide a spike that will give strong returns for your contest)

**BINGO**

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#21) On January 13, 2011 at 11:25 PM, tekennedy (71.14) wrote:

If you can use commodity ETFs maybe short one that experiences contango. 

I'd say the best way to stand out in a crowd is to do something drastic, go long short 2 uncorrelated things with as much leverage as possible.  I'd say the rarer the better as that'd mean you're less correlated to other people's picks; this goes both long and short...if a lot of people are long gold (just an example) and it doesn't do well then you wouldn't neccessarily need to have shorted it to win as your score will be better than theirs and you've thinned the playing field by not playing their game. 

Also items with more limited supply have a better chance of experiencing a shortage which could lead to a price spike, so I'd doubly reccomend something rare.  With a short time frame maybe pick something which has nearterm catalysts. 

My reccomendation, based off of these themes is rare earth elements.  I wouldn't claim to have any specific knowledge on them at all but I'd say go long or short one of them and reverse something uncorrelated.

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#22) On January 14, 2011 at 3:38 AM, Valyooo (99.63) wrote:

Yeah, I was thinking about rare earth elements, but I am not sure which...I guess maybe uranium.

 

As far as trading based on information, how would I know which way the inventory report will come out?

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#23) On January 14, 2011 at 3:40 AM, Valyooo (99.63) wrote:

I did not mean uranium as a rare earth element...I know it is not.

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#24) On January 14, 2011 at 9:40 AM, Melaschasm (65.13) wrote:

It sounds like there will be a large number of people competing in the contest.  It is likely that several will try to use leverage to go long on a volatile commodity.

Unless you can make trades throughout the day as news stories break, you will probably want to go 'all in' on one commodity.

I am guessing that almost all of your competitors will be long commodities, since the general feeling is that we are in for several months/years of rising commodity prices. 

My recomendation is to use leverage to go short on a volatile commodity.  Even if we are in a long term bull market for commodities, we could easily see a short term correction.  If you are the only student to short commodities, you will have a good chance of being right in the short term, thus winning the contest by default.

Good Luck, and have fun!

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#25) On January 14, 2011 at 11:51 AM, Valyooo (99.63) wrote:

Yeah, I think I am going to short gold and silver, and long copper cotton and a rare earth

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