SpreadEdge Capital specializes in seasonal spread trading across a wide variety of commodity markets. A spread trade is the simultaneous purchase and sale of the same commodity with different delivery dates.  SpreadEdge publishes a weekly Newsletter that provides several seasonal spread trade opportunities every week.

Watch List
The SpreadEdge Newsletter includes a “Watch List” of trades that meet our strict screening criteria.  Included in the Watch List are the markets, commodity symbols, entry and exit dates, win %, average profit, average drawdown, best profit, worst loss, and risk level (using a 1-5 scale).  All information is hypothetical and is based on the most recent 15 years of historical data.

This week there are 2 trades on the Watch List that are planned for client and personal accounts.  This video will focus on the short Cotton butterfly spread.

Technical Analysis

Cotton rallied higher every day last week but retreated after briefing touching the October highs.  Cotton looks to need to consolidate before taking out this level.

Relative Strength

Relative Strength is a momentum oscillator that measures the speed and change of price movements.  RSI has a 0 to 100 scale.

Cotton closed Friday just below 70 on the Relative Strength Index.   RSI scores above or near 70 are generally considered to be ripe for a reversal.

Seasonality

Historical seasonality data is generated by SeasonAlgo.  Entry and exit dates are analyzed and scored for every expiration month combination and every possible entry and exit day.
 

The March, May, July butterfly spread has hypothetically profited in 14 of the past 15 years.  The average profit for these years is $427 compared to an average drawdown of $387.

Spread Charts
Spread Charts represent the difference between the front and back month contracts and are simply the front month price minus the back month price.  Spreads that are sold profit when the price gets more negative or less positive.  Spreads that are bought profit when prices get more positive or less negative.

To trade Cotton, I will sell the March, May, July butterfly spread.  The optimal entry date is January 23rd.

Videos

For a video of this trade.

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BTW, for more information on spread charts, my website “SpreadEdgeCapital.com” has a video entitled “Anatomy of a spread trade".

More Information

The SpreadEdge Weekly Newsletter is published every weekend and provides a broad overview of the important seasonal, technical, and fundamental indicators within the Energy, Grains, Meats, Softs, Metals and Currency markets.  In addition, spread trade recommendations and follow-up on open trades is also provided.  For a free copy of the Weekly Newsletter, please send an email to info@SpreadEdgeCapital.com

Darren Carlat

SpreadEdge Capital, LLC

(214) 636-3133

Darren@SpreadEdgeCapital.com

www.SpreadEdgeCapital.com

Disclaimer

SpreadEdge Capital, LLC is registered as a Commodity Trading Advisor with the Commodity Futures Trading Commission and is an NFA member. Past performance is not indicative of future results. Futures trading is not suitable for all investors, The risk associated with futures trading is substantial. Only risk capital should be used for these investments because you can lose more than your original investment. This is not a solicitation.