Dangerous Trade

5월 24일

This trade has bad idea written all over it. Don’t try this at home. Not investment advice. etc. It has come to my attention that HO i.e.. NY Harbor heating oil which is a proxy petroleum distillate for diesel has gotten more expensive than gasoline in recent years many times and that it has done so in an aggressive manner quite a few of those times. This aggression is easily captured by charting the spread between HO and RB. RB is refinery gasoline. The formula for the spread is HO1! - RB1!. I’ve multiplied it by the contract multiplier of 42000 because each contract represents 42000 gallons and the price of each contract is per gallon. The number on the price axis therefore shows exactly how much money could have been made or lost with this spread. The trade idea is to go long HO and short RB once the spread closes positive twice ie. once diesel contracts start trading higher than gasoline contracts for more than one day within a 2-week period. The alternate trade idea is to just go long HO when the spread turns positive. Opex is on June 25th for both HO and RB July contracts so that’s something to be aware of. July contracts HON 2024 and RBN2024 are the contracts of interest until that options expiration date is reached. You’ll need approximately 20k margin to place this trade, as each contract is currently worth around 100k.

This trade is super dangerous because the spread is highly volatile. Don’t do it.
The reward/risk is 7.15. The “if nothing goes catastrophically wrong” risk is $4200 and the “congratulations, jack**s!” reward is $30,000.