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#1 linrom1

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Posted 13 November 2020 - 10:42 AM

I know there are number of people on this board who are looking to profit from Ags boom, but, is DBA the right vehicle?

 

 

 

 

DBA is not tracking these commodities proportionally. I don't know what is going with this investment vehicle, but there appears to be lots of value decay.


Edited by linrom1, 13 November 2020 - 10:43 AM.


#2 flyers&divers

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Posted 18 November 2020 - 04:11 PM

Beside the management fees the rollover of the futures contracts is the culprit.

When the managers of ETNs replace an expiring futures contract they have to pay a higher price for the next contract because of the carrying charges involved holding commodities (or stocks for that matter).

The carry as it is referred to may include such items as warehousing, grading, re-certifying, financing and insuring.

 

When the further out contracts are priced higher then the nearby or cash it is called contagno. That is considered to be the normal relationship.

When the nearby contract trades higher then the following ones it's called backwardation.

 

BTW a warehouse operation could not buy cash or nearby futures to take delivery of the commodity and store it profitably when there is backwardation because they would not be able to lay it off in higher price futures.

 

There were times in the seventies when most futures were in backwardation and traders had all kinds of fun constructing trades taking advantage of the unusual price relationships.

Now with options available on most futures the game is going to be even more complex and interesting for the experienced. The time is coming!

 

Regards,

F&D


Edited by flyers&divers, 18 November 2020 - 04:14 PM.

"Successful trading is more about Sun Tzu then Elliott." F&D

#3 Smithy

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Posted 18 November 2020 - 05:43 PM

F&D, what can I chart DBA against that will show its decay?



#4 flyers&divers

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Posted 18 November 2020 - 11:08 PM

I don't know of any but one would think that if one constructed an index of the cash prices of each commodity in DBA and adjusted

it for it's proportion of the whole then one would have something realistic.

That could get very complicated because I just looked at the fact sheet at https://www.etf.com/DBA#overviewand it does not even spell out

which commodities they are trading.

 

Also, some ag futures have wide differences between end of crop year and new crop year contracts

and DBA also includes livestock futures which don't trade like storable products.

 

F&D

 


"Successful trading is more about Sun Tzu then Elliott." F&D