tag:blogger.com,1999:blog-1708908742323002823.post5456616868970245287..comments2024-02-10T02:18:27.240-08:00Comments on Trader Dan's Market Views: Backwardation Structure appears to Easing in Silver - but is it?Trader Danhttp://www.blogger.com/profile/05484363461047659198noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-1708908742323002823.post-64923652098823569622011-02-26T12:07:16.329-08:002011-02-26T12:07:16.329-08:00Streinikov
Contango exists when the futures marke...Streinikov<br /><br />Contango exists when the futures market has a price structure when the nearby contract is cheaper than the more distant contracts as you move out the board.<br /><br />Backwardation exists when the opposite is true - the nearby futures contract is trading at a premiumm to the next month and the months after that. It signifies very strong demand and eager buyers who are willing to pay up to obtain the commodity immediately rather than waiting.<br /><br />These are very general relations however since the grains and the livestock markets will have different board structures based on the crop year and the breeding cycles. For the most part the above definitions are reliable.<br /><br />Markets in backwardation are not all that common so when you do see it occur, it tells you that supply is insufficient for the current level of demandTrader Danhttps://www.blogger.com/profile/05484363461047659198noreply@blogger.comtag:blogger.com,1999:blog-1708908742323002823.post-17917554979173636732011-02-26T12:02:30.079-08:002011-02-26T12:02:30.079-08:00Robert Leroy Parker - Butch - pick up a book on te...Robert Leroy Parker - Butch - pick up a book on technical analysis by Edwards and Magee which is a good primer. Also Steve Nison is good on CAndlesticks.<br />Those will help you learn the concepts from which you can then build upon.Trader Danhttps://www.blogger.com/profile/05484363461047659198noreply@blogger.comtag:blogger.com,1999:blog-1708908742323002823.post-27461249318319145762011-02-25T17:47:20.015-08:002011-02-25T17:47:20.015-08:00TD - I have the same interest as Butch. Also, a q...TD - I have the same interest as Butch. Also, a quick definition with examples of contango v. backwardation would be useful.Strelnikovhttps://www.blogger.com/profile/12520900676193170036noreply@blogger.comtag:blogger.com,1999:blog-1708908742323002823.post-47103017067712797452011-02-25T17:41:28.442-08:002011-02-25T17:41:28.442-08:00Hi Dan,
Can't emphasize enough how great your...Hi Dan,<br /><br />Can't emphasize enough how great your blog is. Has become a daily read for a lot of us now. I'm new to the futures market and am wondering do you have older posts regarding getting started in futures, or any books/blogs that you recommend for beginners.<br /><br />Thanks,<br />ButchRobert LeRoy Parkerhttps://www.blogger.com/profile/10590421224681538226noreply@blogger.comtag:blogger.com,1999:blog-1708908742323002823.post-43389344786832720492011-02-25T17:06:42.657-08:002011-02-25T17:06:42.657-08:00Dan: indeed, seeing spot higher than futures is a ...Dan: indeed, seeing spot higher than futures is a remarkable anomaly and as you pointed out, really shouldn't occur as arbs should be ready to exploit it until it closes. And like you said, because this is such a rare occurrence, there aren't a lot of guys set up to do this. <br /><br />But I'd submit that perhaps spot really isn't what is being quoted for such size transactions. That is, once you hit the market with 1 million oz of physical to sell, the spot price drops 6 cents and you're even. Though I'd admit that I don't know enough about how size physical transactions are priced and executed. I'd assume that a dealer wouldn't be willing to take the other side of the trade (buy your physical) unless he could hedge - and that would have to be in the futures market. Unless, of course, he is short and really needs it!<br /><br />Sorry to ramble, but this is very interesting and I appreciate you pointing it all out.<br /><br />Best,<br />BrianSpicy Guacamolehttps://www.blogger.com/profile/01838769139269608716noreply@blogger.comtag:blogger.com,1999:blog-1708908742323002823.post-57556773123080724272011-02-25T16:30:27.544-08:002011-02-25T16:30:27.544-08:00Brian;
You are right about the spot market but on...Brian;<br /><br />You are right about the spot market but one thing I have noticed over the years is that rarely does a situation exist where you have a spot market transaction that consistently trades at a premium to a nearby futures contract throughout the day unless there is a good reason for it to be so doing. <br /><br />It will generally not last long unless there is a strong reason for it to last because arbitragers can move very quickly to take advantage of such things if they have good contacts in the physical markets.<br />I used to watch guys play the pork belly contract by taking delivery of the bellies and then selling them on the cash market and making a nice profit. They of course had a good system to do that as it obviously involves some gymnastics but it can be done. With bellies you had a frozen commodity that needed refrigeration and was perishable. With silver that does not exist as a problem.<br /><br />there are simply not a lot of guys who are set up to do something like this but it is done.<br /><br />An example - suppose I was able to buy one million ounces of silver on the March contract at the Comex at a 6 cent discount to the spot market while I was able to nearly simultaneously sell that same one million ounces on the spot market with the idea to deliver the metal at a specified date. I make a gross profit of $60,000. After taking out expenses for delivery fees, shipping, etc., I would still walk away with a tidy sum. Not bad for a day's work.Trader Danhttps://www.blogger.com/profile/05484363461047659198noreply@blogger.comtag:blogger.com,1999:blog-1708908742323002823.post-18909181516231609532011-02-25T16:11:18.551-08:002011-02-25T16:11:18.551-08:00Great post Dan. You make a great point regarding ...Great post Dan. You make a great point regarding the premium that spot price is to futures, but where are you getting your spot price. There is no central physical gold exchange with minute-by-minute spot transactions. Spot is really based on futures and what each particular dealer is quoting isn't it. If so, the arb opportunity might be fleeting.<br /><br />Great blog!Spicy Guacamolehttps://www.blogger.com/profile/01838769139269608716noreply@blogger.comtag:blogger.com,1999:blog-1708908742323002823.post-52284225784773733832011-02-25T15:50:52.588-08:002011-02-25T15:50:52.588-08:00Flaunt;
The point in keying in on the March contr...Flaunt;<br /><br />The point in keying in on the March contract is because that is the one that will govern the delivery process in silver when it enters its delivery period next week. If the tightness that curently exists in the silver market continues and the spot market or cash price of silver remains at a premium to the March Contract, I would expect to see large stoppers taking delivery which would put severe pressure on the shorts who would of course have to come up with the metal. Where are they going to get it based on the reports of tightness of available supply. That is why the next couple of weeks should be very interesting to say the least to see how all of this shakes out.Trader Danhttps://www.blogger.com/profile/05484363461047659198noreply@blogger.com