Short term
Trade view / 23 October 2015 at 11:06 GMT

Looking for opportunities in soybean oil

Chief Investment Officer / ACIES Asset Management
Instrument: ZLZ5
Price target:
Market price:

When was the last time you took a trade in soybean oil (BO)? It might not be one of the more well-known commodities, but that's of very little consequence. Perhaps you don't trade soybean oil because you don't know anything about it. But you don't really need to know much about it. It's a price series that can be traded from a quantitative perspective, regardless of the underlying. That's a neat aspect of quantitative, systematic trading.

Soybean oil is in a long-term bear market. After all, it's been in an almost perfect negative trend since 2011. This commodity has seen very few positive months since the start of 2011. (See the weekly chart below for context.)

Weekly soybean oil futures continuation
BO Weekly

Source: CSI Data

In the shorter term, we've seen a bit of a move up. Those who follow my articles know that they are often about taking the opposite side of counter-trend moves. This time we have a very steep long-term trend with a short-term bear market rally. That means good probabilities for shorting into the current strength.

Daily soybean oil futures continuation
BO Daily

Source: CSI Data

Management and risk description

Sell to open into the current strength. The contract to trade at the moment is December. The ticker is either ZLZ5 or BOZ5 depending on your market data system. 

The curve is in contango, which is normal for this market. That means that even if the actual spot market price remains stagnant, the futures prices will fall in the long run.

Soybean oil dashboard display
BO Dash

Note that this market is often quoted in US cents (USc) instead of USD.


Entry: Sell on current levels, around $0.2885.

Stop: Take stop at $0.3029.

Target: Profit-taking at $0.2597.

Time horizon: Around two weeks.

December Soybean oil futures contract
Source: ThomsonReuters

— Edited by John Acher

Non-independent investment research disclaimer applies. Read more


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