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The power of my portfolio

6 Oct 2017,

In the previous article, I have promised to tell you more about my portfolio. You already know how it is composed, but today I will go a little bit deeper. I’ll explain you where is the strength of the portfolio.

Portfolio strength

Those who are familiar with my articles know, that I mainly trade inter-delivery spreads. Just to recapitulate, I am currently having two bear spreads and one bull spread (ZLH18-ZLZ17, RBH18-RBG18, SBH18-SBK18). With this group of interdelivery spreads, I have created de facto a big intermarket spread. So I can enjoy several spread benefits at the same time. On one hand, I can profit on contango and backwardation, respectively on changes in the structure of the market, and at the same time I can profit on relations between commodities.

Bear Spreads

I’m holding bear spreads for soybean oil and gasoline. It might sound surprising, but I am basically holding two bear spreads on energies. Soybean oil is classified as oilseeds, but its behavior often follows energies due to biofuel (biodiesel is produced from soybean oil). Of course every bear spread makes sense on its own. However, by having both spreads open at once, I have increased the overall risk, because these spreads often tend to move in the same direction.

Bull Spreads

I have built a bull spread on sugar against the bear spreads. Maybe you’d ask me now: “And what’s the benefit? After all, sugar belongs to a completely different group of commodities. ”

Yes, it is true, but sugar has also a considerable energy link. It is a significant source in the production of ethanol, which is mixed into gasoline. So, basically, it’s also biofuel.

Intermarket position

By putting a bull spread on sugar against the bear spreads on gasoline and soybean oil, I have created one big intermarket position. And every foot of this spread has its purpose. Bear spreads serve to slow but steady profit, and bull spread plays role of a protector against large movements or in case of unexpected events. In case of something essential would happened with the energies, the bull spread could at least partially cover the loss of the bearish spreads.

Of course, I’m not saying that this will actually happen. It may happen that all three positions will finish in loss. The trader must count with every opportunity. But it can also happen that I will earn on both sides of the position i.e. both on bear spreads and on the bull spread. It’s nothing special. Every strategy makes its own sense. Each of them brings some advantages.

Securing individual positions has a huge advantage over the long term perspective. But that does not mean we can leave our risk management. If something negative would happened with any spread, I will at least partially step out of position at the cost of disrupting my current strategy. As I always say – you need to listen your trading system!:)

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