Friday

Contango, Oil and Gas

Oil Contango Trade: US Light Crude March vs April 2009

TheInflationist experiments (kids, do not try this at home) with another trade which could make us a fortune. There is a contango for US Light Crude Oil between the March and April 2009 contracts. We were introduced to the concept not long ago after reading Jim Rogers’ Hot Commodities, and we soon started our research on a potential to profit from this discrepancy. For those of you who are not familiar with the term, Contango is defined by Wikipedia as: the situation where, and the amount by which, the price of a commodity for future delivery is higher than the spot price, or a far future delivery price higher than a nearer future delivery. A contango is normal for non-perishable commodity which has a cost of carry, such as warehousing and cost of holding. Read up more about Cotango on Wikipedia.  and the last time we dipped our toes into a Contango Trade, we took profit way too early after a nerve wrecking ride with unrealised losses of about $600 from a $2/point position. TheInflationist takes a short position on US Light Crude April contract at 4255 and a long position of the March contract at 3445, a whopping $8.10 difference. Every dollar in discrepancy wider or narrower is worth $200 in losses or profits respectively. We have had a busy night. Also, goes without saying that all stop losses are brought up to our entry level to protect our profits.