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Dan Larsen
Saxo Bank’s Head of FX Options Dan Juhl-Larsen shares his insights and experience trading FX options and looks at the opportunities on offer in the market.
Squawk / 22 June 2016 at 19:02 GMT
Hypothesis Testing
United Kingdom
Sugar....once considered a luxury product but now more a food staple and fuel by product. I am currently looking at #11 world sugar NYBOT as opposed to the old style classification #14 subsidized US domestic sugar.
USA is one of the few contries that can grow beet and cane and both are harvested in the start of autumn. Crop near marketing for new crops commences late Aug. Prices tend to decline to March and beets are sown then...beet excess lowers near term pricing but we are seeing supply issues on this side of sugar so cane will take the excess demand but cause typically peaks around July/Aug.
1y
fxtime fxtime
Old crop July seasonals against new crop October is a very old school spread trade but warehoused stock overhangs cause further issues here but delivery bottlenecks are confusing issues here so when looking at commod reports play the commercials against large investors as the latter usually capitulate before near delivery and rollover periods have added to the whipsaw moves you have seen. July will be the crux period for you but watch that commod ratio. USE a 13wk SMA as enter long or short as the success percentile is at it maximum with this historically!
1y
fxtime fxtime
Decay trades can work with this but will be expensive even as a 2 std dev OTM near term as one side will be reached and you will need to roll the unchallenged side to maximise premium returns if you see what I mean?
1y
fxtime fxtime
You can synthetically write the contract in reverse to reduce margin requirements and enhance b/e to a more favourable position but this is a volatile commod that has very large traders palying the game too.
1y
fxtime fxtime
eg; sell the call to open at 2 std dev away and sell the put to open at 2 std dev away but always remeber the untested side will need to roll to maximise premium returns due to decay...it isn't a short term trade mate. But possibly safer.
1y
zefy zefy
Yes, thanks. Regarding 13wk SMA, thats good point. I will run tests as I my model uses much shorter SMA now.
1y
fxtime fxtime
sorry for all the typo errors too LOL.
1y
fxtime fxtime
Also repo style rollover events occur with the large investors so rollovers occur earlier. the recent whipsaw co-incided with such events as large investors maximise their long term returns by gaining the optmum theta level (time decay) and premium returns. They aren't interested in the gamma scale up to b/e as too short term for them.
1y
fxtime fxtime
13wk = 80day cycle for commods....you will see a good peak to trough on these cycles.....commods are grown so are seasonal cycles and the last thing a large scale investor wants is a deliverable commod....only commercials want that.
Secondly the same cycle works very well with bonds especially 30yr bonds if you are bored have a look. Next month we reach a cycle peak !
1y
fxtime fxtime
Whilst Bonds aren't seasonal products they do respond to repo house pricing modelling :-)
1y
zefy zefy
It is very good to get suggestions what kind parameter set to test. Actually, if I take my general futures model, LIFFE sugar is one of the worst performing so definitely different parameters set is needed.
1y
zefy zefy
Okay, you gave some work for my computer to do :). I will check commonds against 13wk cycle...
1y
zefy zefy
Thanks, highly appreciated!
1y
zefy zefy
And bonds too!
1y
fxtime fxtime
Weekly sma13 is good imho however you can plot large investor against commercials and use like a dmi+/dmi- scenario even on 13 dailies.....a sort of corrupted ADX chart ensues. You aren't looking at the crossovers but the spread between them you will quickly see maximums/minimums (ironically next weeks article) but overlay a 80 day cycle starting from the last whipsaw/rollover point which was approx 4 wks before expiry points.....this is typical for the large investors for obvious reasons but they are effectively trading the exact same manner as a repo house model.
1y
fxtime fxtime
When plotting dailies as one final suggestion...as Reimann found out that prime values have a higher confidence result so 11, 13, 17 etc....its down to your risk aversion and confidence interval factors :-)
1y
fxtime fxtime
Set your computer programme as a lentices eg Benoir Mandelbrot and you will end up with what resembles a saw tooth pattern for new crop(cycle) old crop(cycle)....hope this makes sense? If not let me know and I will draft one for you.
1y
fxtime fxtime
LOL....Hopefully we haven't put onsite traders here off sugar LOL.
1y
zefy zefy
LOL. Daily 11 is already in use in my system. And so are SMA spreads but I see I should utilize those more and test different parameter sets.
1y
fxtime fxtime
These are only suggestions mate...I will never tell you what to do. You can do a lot with MMA11 or SMA11....as you know I sue that for SPX :-) Def worth plotting a sma11 on commercial against sma11 large investors though ! imho.
1y
fxtime fxtime
sorry sue=use....typing on the move is never a good idea :-(
1y
zefy zefy
Totally understand. And appreciate your suggestions as those give me so much new ideas to test and see what fits best my system.
1y
fxtime fxtime
Let me know the outcomes...happy profitable testing.
Have a good evening.
1y
zefy zefy
Thanks, you too.
1y
zefy zefy
No results to share yet, I am doing programming...
1y
zefy zefy
Implementation of 80 day cycle is the main focus now
1y
fxtime fxtime
You can use the classic 60day cycle but the range overlap between 60 - 80days is worth observing imho. Don't forget plotting a 13wk sma on commercial/large investors from the COT is just as useful too.

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