Since last week, retail traders have fully taken over. To break it down for you: Robinhood is now the new Vegas, David Portnoy the new Warren Buffet (or maybe not?) and Tesla the new VW Toyota.
Looks like people are taking the #happytrading seriously in times of lockdown and closed gambling venues. While we are clearly pro democratization of trading, we are a little bit sceptical given that we know the academic studies on individual investor’s performance. But hey, at least Hertz got a really nice financing opportunity on its hands and you know: It’s all gonna be different this time!
We want to add some diversification to the mix which has at least some fundamental drivers (not looking at you here, stock and bond market). Among the trades that have worked best for us this year are short calendar spreads in crude. Short spreads in Brent and WTI have performed exceptionally well between February and mid-April, but deteriorated in recent weeks on the back of substantially reduced supply (causing the contango to reduce significantly). There’s still a lot of floating storage around and the market may become oversupplied again if the economy doesn’t deliver the anticipated V-shaped recovery, OPEC+ members cheat with their outputs, or demand reduces again (e.g., due to a second wave). Against this backdrop, being short near-dated calendar spreads is a position we still like. One might consider balancing this exposure with long spreads at the longer end of the crude curve, e.g., Dec 21/22.
A market that may be headed in a similar direction as crude earlier this year is natural gas, especially natural gas in Europe (TTF and UK gas). The European gas market seems oversupplied already as storage is getting closer and closer to full capacity and US LNG cargos continue to arrive on the continent. The TTF Sep-Dec spread has moved from around -3 in mid-March to a low of about -6 at the end of May. Since then it has recovered to around -5.3, but there’s a good chance that the market won’t be able to absorb all that extra gas in Sep (weak demand, no cold weather) and therefore the Sep-Dec spread could deteriorate quite a bit more. A similar picture can be seem for UK gas. Being short spreads in both markets is a position we like.
So long and #happytrading!
Note that this is only an idea, not advice of any kind. Probably no one should implement our trade ideas or the trades we are doing, as pointed out in our Disclaimer.
