My Experiences Trading Cotton and Lumber Commodity Futures Contracts and Options

Cotton Futures and Options

COTTON futures and choices commerce on the NYBOT. (The New York Board of Trade) Cotton has low to medium quantity and liquidity; simply sufficient to get by. An account margin of $1300 controls 50,000 kilos of cotton, value about $30,000. One full level of value motion equates to $500.

Day buying and selling cotton futures could be troublesome. At occasions, the short-term charts could make little sense. Cotton futures fills (order execution value) typically have important slippage whereas the choice fills are gradual getting back from the ground. Market orders will get you crammed instantly however you will not be pleased with the outcomes. Obviously, the primary downside with short-term buying and selling cotton is liquidity.

Liquidity just isn’t actually an issue with long-term cotton place trades lasting weeks in period. Low liquidity will make little distinction in your general outcomes due to rare entries and exits. Effectively utilizing restrict orders in cotton will remedy the slippage downside, however makes entry and exits more difficult.

Normal strikes of 5 to 10 cents are widespread in cotton. ($2500-$5000) Over the previous couple of many years, the cotton market has cycled inside a big value vary. The excessive lows are 28 cents to highs of $1.17 a pound. The objective of many long run merchants is to catch massive strikes like this.

Weather is at all times a consideration when buying and selling cotton. Droughts, floods, illness and insect infestation (boll weevils, and so forth) can propel costs. There’s occasions when cotton trades counter to the opposite grains. (wheat, soybeans, corn, and so forth) What could also be good rising situations for cotton could also be antagonistic to the opposite grains and visa versa.


LUMBER Futures and choices are traded on the (CME) Chicago Mercantile Exchange. An account margin of $1700 controls 110,000 board ft of lumber value about $27,000. One full level in lumber equates to $110.

Lumber’s forty 12 months low within the 1970’s was $94. It’s all-time excessive was $493.50 after the Mt. St. Helens volcanic eruption blew out huge quantities of timberland. A $100 transfer in lumber over a number of months is typical. ($11,000 a contract) Limit strikes up and down are a quite common incidence. The liquidity in lumber futures is an issue however tolerable. Market orders are generally crucial, however there’s a massive probability of slippage.

Lumber choices are illiquid. They are onerous to purchase and promote. A sequence of restrict strikes in your route will allow you to liquidate with a pleasant execution value and revenue. Effectively utilizing restrict orders in lumber will remedy the slippage downside, however makes entry and exits more difficult

Lumber costs can pattern nicely since provide and demand are primarily based on numerous long-term developments. These embody U.S. housing demand and the provision commerce agreements with Canada.

Short time period buying and selling is feasible if you’re nimble. Look for a five-dollar swings as an goal. ($550) If you get a restrict transfer in your route, it’s possible you’ll wish to get out of your futures contract. Reversals are widespread after massive strikes. However, if the transfer is supported by long run bottoms and main time cycles, it’s possible you’ll wish to maintain on for what may very well be an enormous journey.


Here’s how I search for alternatives within the cotton and lumber markets: First I generate a TimeLine forecast that reveals a robust transfer up or down in cotton or lumber. The TimeLine relies on time cycles and different preprogrammed patterns. I then decide if the transfer is predicted to be uneven, trending, and for a way lengthy. This helps us concentrate on potential directional futures/possibility positions or writing choices in a spread, and even writing choices with the pattern.

Next I exploit automated possibility software program to seek for one of the best of 1600 methods primarily based on the anticipated market transfer. I evaluate these choice to possibility combos in opposition to futures to choices combos. At some level I’ll discover a compromise between danger, revenue and simplicity in a single or two methods. In hindsight there’s at all times a finest technique we may have used. Keep that is thoughts when narrowing down the alternatives. When completed, we wish to have one or two potential trades to work with. We name the chosen few, “high probability, low risk trades.”

Remember there’s extra to planning a commerce than simply developing with a forecast. The market could transfer as predicted however we will nonetheless lose by selecting the mistaken buying and selling autos. Pick the precise autos and methods that can permit us to remain out there with out extreme concern, however nonetheless carrying calculated danger.

We NEED to tackle calculated danger or the market won’t pay us for our companies. In addition, the automobile has to maneuver far sufficient to make a revenue with out letting the expense of safety eat us up. Excessive safety (danger avoidance) can come within the type of possibility premiums, too close-in cease loss orders – and overdone, advanced unfold methods. Matching a forecast to a technique is a vital ability to reach commodity buying and selling.

Good Trading!

There is substantial danger of loss buying and selling futures and choices and will not be appropriate for every type of buyers. Only danger capital must be used.

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Source by Thomas Cathey

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