Sell Side Action…Finally!
The IMC blog pitched a crazy idea this summer about using a scale trading method to take advantage of price fluctuations in commodity spreads that are at extreme levels. The gist of it is that one would continue buying spreads in intervals as prices declined and then sell those same spreads in intervals on price rebounds.
To keep things interesting and show you how it works, the blog is running a scale in the December 2017 copper(x2)/gold spread. We are trading a $5k interval ladder where we will buy every $5k down and sell each position for a profit every $5k up. Also, we are doing this on a closing-basis.
Since our scale started at -$5,000 (premium gold) and the spread was trading at -$21,135 when we launched it on July 20th, we entered four spread positions and considered them ‘bonus fills’ for the -$5k, -$10k, -$15k, and -$20k intervals. They are for sale on closes above -$15k, -$10k, -$5k, and even money, respectively.
Another December 2017 copper(x2)/gold spread was purchased at -$25,725 on August 1st. We are selling this one on a close at -$20k or higher. So far, no action.
On September 6th the blog entered another December 2017 copper(x2)/gold spread at -$30,915, based on the close below -$30k criteria. As per the plan, we offered it for sale on a close above -$25k.
Well, guess what happened?! This last purchase was liquidated on September 15th at -$24,115! That bags a profit of $6,800 on this position.
One of two things will happen next: The spread will continue to rally and close above -$20k and allow us to sell the position we bought at -$25,725, or else the spread will close back below -$30k and we will reenter the position that we just sold.
It will be interesting to see how everything plays out between now and November of 2017 when we finally have to think about rollovers. Until then, let’s hope for some volatility to keep the December 2017 copper(x2)/gold spread banging around like a pinball and racking up the points!