Now putting it together across the board….

Posted: February 7, 2010 in Argiculture, Energies, Strategies

In the last post we saw some interesting characteristics of butterflies in the eurodollar marketplace.  In this post, we will look at utilizing the double butterfly to calm the storm in more volatile markets.

First, let’s recap what a double butterfly is:  Buying 1 of an expiration, Selling 3 of the next expiration, Buying 3 of the next expiration, and Selling 1 of the next expiration.  With this position, we would say you are long the double butterfly.  The side of the position is always denoted by the side of the nearest to expire contract.

Next, let us start with the agriculture markets of soybeans.  I will construct a CQG double butterfly spread consisting:


WAIT, WHAT DOES THAT MEAN? ZSE is CQG’s symbol for soybeans and ? denotes to always look to the contract that is listed.  In this case, ZSE?1 tells CQG to always look to the front month.  It is a way to continuously roll the front month.

Next, let’s look at Soybean Oil (CQG symbol: ZLE).

Moving on to Soybean Meal (CQG symbol: ZME)

And now to the fun stuff, the crude oil (CQG Symbol: CLE) double butterfly:

And even further fun, heating oil (CQG symbol: HOE)

And lastly, RBOB (CQG: RBE)

Looks pretty wild even for a double butterfly, I know!  My goal here was to show you stability across multiple markets.  If you look at the outright, spread, or even regular butterflies during this same period you will notice considerable volatility/directionality but this strategy tends to be more generous in risk metrics during your holding time frame.


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