I am sure we all have been hearing a lot about the move to curtail speculative trading in the commodity markets. I thoight this was an interesting article. Whether one thinks speculators are net positive/negative for the market and the society (I personally think ETFs should be outlawed but let professional speculators speculate) I think it is likely that passage of speculative restriction would at least send the price down temporarily. Could I make money off this?
I thought perhaps I could buy some OTM puts on WTI. Turns out these options are still way too diamn expensive due to volatility and time value. Then I extended my analysis: who gets hurt if such rules get enacted? Can I buy some OTM puts on CME (who owns NYMEX where WTI is traded)? Well, these options are still too diamn expensive. What then - how about shorting CME and hedge out the equity beta portion by going long another exchange stock with minimal exposure to commodities? NYX perhaps?
The two stocks are very highly correlated so it seems to me like the equity sensitivity portion can be hedged. NYX seems to have higher dividends than CME which is good. Must look into how much commodities contribute to CME's earnings.
Though I wonder : is NYX gonna get hammered if that whole HFT thing gets busted up by the gubment?
1 comment:
I think if you look at the breakdown in calendar spreads in NG based upon the regulation of nat gas you may find your answer to how to play this. Ie, short month 1, buy month 3, watch the spread blow out as they limit positions on USO. Front end ain't that steep so the carry doesn't hurt too much.
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