Carry Trade on Commodities

[r2997790]

Hi everyone,

I know the carry trade is more or less dead in Forex, but there's some huge swops being paid on Commodities, eg. Gasoline and Hogs for example, and the market volatility appears to be less then the annualised swop position.

I wondered if anyone had looked into this before?

I must be missing something as it seems very good. If/how to hedge the commodity could be an issue.

Cheers,
R

 

[flashman57]

Hi - I'm guessing you're talking about short front month, long one of the back months in rbob for example, then rolling your front month short as it expires until your back month long has become the front contract?

RBOB Gasoline Futures Quotes - CME Group

Find information for RBOB Gasoline Futures Quotes provided by CME Group. View Quotes

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That makes sense I think. Roll yield is affected by a lot of things - interest rates and anticipated volatility being the main ones. The obvious problem with the RBOB position would be that you are going to be short the front month gas contract over the winter - which if you get a sudden cold snap and gas demand roofs could cause the spread to blow out against you.

Hogs I'm not so sure, not my area. China is the key variable there I think. You'd really have to check the fattening/slaughter cycle for hogs in China and US to make sure you understood the risks.

Good luck!