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Futures are not just the cash price plus the
storage and interest costs. Futures prices are based on nearby demand and
future demand, but mostly nearby demand. If the demand is strong, the
nearby contract will be at a premium. If the demand is weak, the nearby
will be at a discount. The discount will almost never by more than storage
plus interest. On the other side, cash or the nearby month can go to an
enormous premium to the deferred contract.
The best traders will only trade inverted or
backwardated market (premium for the nearby) from the long side. If you
want to look at an inverted market, look at crude oil on the NYMEX. People
who like to write checks trade inverted markets from the short side.
People who like to collect checks trade them from the long side.
Copper is another inverted market. From the
beginning of December to the beginning of March there was not one sell
signal. The rally was 50cents or $12,500 per contract.
If you trade normal markets from the short
side and inverted market from the long side, you will have better results.
It is just another filter.
Good luck.
Chris
<FONT
face=Tahoma>-----Original Message-----From: Jay T
[mailto:JaysTownsend@xxxxxxx]Sent: Friday, March 19, 2004 12:41
AMTo: equismetastock@xxxxxxxxxxxxxxxSubject: Re:
[EquisMetaStock Group] Futures / Options comparison
<<...Therefore, as far as using Tech Analysis on
a futures contract is concerned, just let the price dictate your actions and
not the cost of carry...>>
I disagree with that relative to price comparisons. Again,
theoretically futures are today's cash price plus the carrying
charges of storage and interest rates. It's really that simple. So
if you trade on speculation, you are really speculating on the cash price
of the underlying commodity at the point of the expiration of the futures
contract, and I agree that playing the price game (fundamental or
technical) is the way to go. However, they are significant opportunities
in grains (and others) for example, when the distant expiring contracts
are priced at a discount to near-term contracts (when they should have their
relative carrying prices added) and sometimes this price discount is very
significant. When you see this, it can give you a signal of some
potentially profitable price activity. One last thing, one who doesn't
watch the cash price (on hard goods) as closely as they watch the futures
prices can also miss some entry signals.
Jay
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