Option trading doesn’t lend itself (yet) to any of the existing electronic trading platforms. Market makers continue to find it to their benefit to gather each day in the trading ring as a central focus for providing quotations for those seeking to do business in options. The majority of sizable transactions involve structured deals with futures, or against a series of other options, in ratios, etc… to obtain delta neutrality, or fit their particular needs.

However, it is growing increasingly obvious that the smaller boutique markets, which include most of the soft markets, will be moving towards an over-the-counter style of trading.  Whether because of expenses of maintaining staff, and booths and such, or because volumes and fees continue to drop, or pehaps a combination of the two, more and more brkerage and trading opperations are leaving what’s left of the trading floor.

You know, There are a lot of plans being made to observe the eighth anniversary of the attack on the Twin Towers. I was there that day and worked in those buildings for almost twenty years. Frankly, I try to
forget what I saw that day. I find many of those memories are better hidden away.

Anyway, a couple of weeks ago I happened to have an appointment that required a walk past the hole in the ground, you know the one, where the towers used to be. It pisses me off that there is still a F’ing hole in the ground almost eight years later. For me that is a symbol of how the terrorists won. They knocked down the towers and we just leave a big hole in lower Manhattan….

It would please me to stop fussing over what type of replacement is polittically correct, just rebuild the same freaking towers. Lord knows we ought to have the blue prints and experience to rebuild them in short order. If we did then we could name them. Call one “Freedom” and the other “Unity”. And at night we could light up their initials.

F.U.

Anyway, those are my thoughts,  Jurgens

This was forwarded to me by a client: Originally Posted by FT Alphaville on Sep 02 12:30.
Market regulators might not yet realise it, but it seems even the whiff of more regulation gets results these days. In the field of energy price speculation, nothing speaks as eloquently about the likelihood of impending new rules as the move by Deutsche Bank this week to scrap a product that lets investors bet on oil prices.
As the FT reported   [  http://www.ft.com/cms/s/0/b32bd5d0-9744-11de-83c5-00144feabdc0.html?nclick_check=1 ] on Wednesday, Deutsche said it would redeem all its memorably-named PowerShares DB Crude Oil Double Long exchange-traded notes, which use leverage to double returns from price moves in crude oil. This makes it the first exchange-traded commodity product to go completely under –others so far have only suspended new share issues — as Wall Street braces for a potential regulatory crackdown on energy speculation.
As of Tuesday, there were $425m of such notes.  Deutsche’s move will effectively see it buy-out shares from existing investors before selling the oil assets on September 9.  The action, as the FT notes, “could set a precedent for similar actions by other investment managers”.
Oil impact
The big question, of course, is what footprint might the fund’s liquidation leave on underlying futures prices, and to what degree the wider market might take advantage of a semi-distressed seller coming its way next week.
Olivier Jakob of Petromatrix, forsees a number of scenarios. As he noted on Wednesday (our emphasis):
Two weeks ago, Deutsche Bank decided to stop issuing new shares on its WTI Double-Long ETN. Yesterday it announced that it is taking the decision to shut-down the ETN next Wednesday (Sep 9th).
The WTI positions held by the DXO are in July 2010, therefore they will have to sell about 11’000 July WTI contracts (a third of the July2010 Open Interest).  While this will have a flat price impact next Wednesday we think it is too early to already pre-emptily sell in front of it. We would rather buy the WTI spreads to July 2010 as we would imagine that Deutsche will buy the spreads to bring the flat price length closer to the front to find enough liquidity for the liquidation of the Fund.

If Deutsche Bank does not buy the spreads in front of the liquidation then the risk will be for a strong strengthening of the spreads to July when the holdings of the Funds are sold next week. If holding a bullspread front to back does not fit in the book, the alternative would be to sell the July/Aug or July-to-back spread or sell the July WTI to Brent spread, buy the Jul 2010 cracks.
One way or another, WTI July 2010 should find some specific pressure next week, according to Jakob.
As for what all this means for commodity ETFs generally, Matt Hougan, director of exchange-traded fund analysis at IndexUniverse.com, told the FT: “It’s ominous… it’s the first shoe to drop, and won’t be the last.”
This entry was posted by FT Alphaville on Wednesday, September 2nd, 2009 at 12:30

The negative pressure prices have experienced have resulted in turning bull markets in coffee and cotton into bears. Both have had sizable prices drops since last Thursday and while you might consider those two markets due for a bounce, what if one doesn’t happen? Uncomfortable longs ought to be seeking to use any bounce to get out. If prices cannot firm then they may abandon longs anyway. Shorts, while they may be inclined to cover on strength would be sure to re-sell on further weakness.

So, Ias you can tell I ‘m not thrilled about being long either of those two markets, the very same which I strongly felt held upside opportunities not more than a week ago. For more on why, see my morning comments, Jurgens

I think it appropriate to discuss this topic as it relates to recommendations that I issue in the soft markets.

If you notice, I purposely base my soft market recommendations in ”units” rather than the number of contracts. My reasoning on this is to enable any reasonable size account the opportunity to participate provided it is within the account holders risk tolerance levels and trading goals. Commodity trading involves substantial risk and managing that risk holds a high priority.

A typical recommendation of mine will therefore be in units. How many contracts should comprise a unit is dependent on several factors. Both the size of the account and the risk tolerence level of the customer are two important factors that should dictate the number of contracts that comprise a unit, but a unit can be as small as one contract, or multiples, say five, ten twenty, or even larger.

Typically, I make every effort to limit the risk by employing option strategies that tend to try to limit the risk. Occassionally, I may use a combination of futures and options. My goal is to provide appropriate risk reward opportunities by managing risk effectively, but seeking potential for gains that make trading worthwhile.

I’m available for questions. Thank you, Jurgens

We’ve seen some downward spikes recently among the soft markets. Cocoa does it, cotton and coffee this week have done it. And these spikes didn’t last, well it didn’t last long in coffee, cotton has been fairly quiet the past few days and hasn’t recovered from the down move, but I sure don’t want to be short cotton here.Subscribers have been reading about my concerns that a 200-300 point drop was possible, yet I recommended buying cotton and got filled early on the day of the drop. I didn’t stop myself out. Instead, I’m actually looking for an opportunity to buy more, and no not simply to average my cost down, that’s a losing strategy from the get go.

Cotton Export numbers were expectedly poor, (some might say worse than that), which gives rise to the need for the recent price drop. Cash cotton business needs a boost and the US will be more competitive with lower prices. Will the recent price shift downward do the trick? Doubtful in and of itself, but I strongly believe that this market has other reasons to move up. Firstly, because we have the smallest crop in my memory (and I’ve been around since cotton trading 1980) and small crops only get smaller.  Second the trade are already holding short futures against their long physical position and they aren’t aggressively available to sell additional shorts heavily into strength. So, if (and when) the market gets strong from spec buying, who is going to sell it to them?

It is a fact that as physical cotton moves in the form of sales (principlly exports as domestic use is nominal) the trade will need to cover their shorts against sales they make. That means they’ll buy too. So the downside looks very limited in my eyes from current levels. The upside however is another story. We could see a tremendous bull mkt in cotton. Thus purely from a risk reward basis cotton looks ripe for a big move up.

It is obvious that during the summer doldrums it is easier for big orders to push prices around. We saw this happen yesterday, Tuesday the 21st, in cotton. We are seeing it again in Cocoa and coffee today. Is sugar next?

Regardless of the declines, regular subscribers should know that I had been calling for a 200-300 point drop in cotton, I remain friendly long term towards cotton as well as coffee. Coffee got flushed today when a large 400 lot order hit stops and KCU dropped quickly to 116.35, less than a minute later it was back to 119. Go figure….I also believe that sugar is headed higher long term, but that market may be overdo for a shakeout. Cocoa is far too crazy and thin.

The net impact can change charts considerably, so be aware of the impact that large orders can have in these thin summer markets.

7/13 - West Texas: Here’s a good picture that pretty well illustrates the condition of the West Texas cotton crop. Spring planting rains were really spotty and most of the non-irrigated crop south of Lubbock has failed (Approximately 1 million acres). No rain means dry soils that equals violent sand storms like this one when storms roll in, off the mountains of New Mexico. This picture was taken just southeast of Lubbock, TX at my daughter’s home in the small lake community of Lake Ransom Canyon. The picture was taken facing to the west and the Lubbock skyline is usually clearly visible from this vantage point and there is a huge electric power generation plant only 3 miles away. This storm was packing 80 MPH winds and the sand literally shreds the young cotton cotyledon leaves that were emerging on the day of this picture (6/18). We lose much more cotton to sand storms like these that we ever lose to a hail storms.

US CFTC asks views on oil futures position limits

Wednesday July 08, 2009 01:00:10 AM GMT

WASHINGTON, July 7 (Reuters) - The U.S. regulator of futures markets wants public comment on whether it should set position limits on energy futures that apply across all markets and traders.

The Commodity Futures Trading Commission said it also sought comment on who should qualify for exemptions from position limits. Some lawmakers say hedge exemptions should go only to people who plan to buy a commodity and not those who hedge financial risk.

Oil prices set a record in 2008 and grains contracts surged to historic levels amid complaints that a flood of investor funds distorted the futures markets. Wheat and cotton growers said futures prices zoomed above cash prices.

In a statement released on Tuesday, CFTC Chairman Gary Gensler said CFTC also would revise its weekly Commitment of Traders report to show the activities of swaps dealers and hedge funds. He said the “enhancements” would appear in the near term but did not set a date.

Anti-speculation bills pending in Congress would direct CFTC to set position limits on oil and other energy futures and spell out in its reports the role of swaps and hedge funds in futures markets.

“Our first hearing will focus on whether federal speculative limits should be set by the CFTC to all commodities of finite supply, in particular energy commodities such as crude oil, heating oil, natural gas, gasoline and other energy products,” said Gensler, who took office on May 26.

He said the hearings during July and August would help determine how CFTC should use its powers to ensure fair trading. No hearing dates or locations were announced.

At present, the CFTC does not set position limits on oil and other energy contracts although futures exchanges do. The CFTC has position limits on some agricultural contracts.

“The commission will be seeking views on applying position limits consistently across all markets and participants, including index funds and managers of exchange-traded funds; whether such limits would enhance market integrity and efficiency; whether CFTC needs additional authority to fully accomplish these goals; and how the commission should determine appropriate levels for each market,” said the statement.

Besides showing hedge fund and swaps positions, the Commitment of Traders report will be modified to show data on foreign contracts linked to U.S. contracts and to show data on contracts that play a leading role in setting prices.

The old axiom, “small crops get smaller,” is an important one for this market. What I meanby that is this. The US cotton crop is the smallest I can remember in my carreer, and I’ve been around 30 year……I know that’s why I’m a seasoned professional….Anyway, almost 60% of this year’s crop is focused in Texas and you can’t expect that all to grow. In fact if you look at the progress report from the other day 72% of the Texas cotton crop is fair or lower.

Sure demand will suffer from Z over 60 cents, but tell that to the funds! They see an opportunity and are juming on it. Recall that prior to the “bearish” planting report prices had already advanced. then they dipped in choppy trading, yet still closed up on the day. Its not so much supply and demand for the underlying cotton as it is supply and demand for the futures contracts…..Cotton may be ready to make a good sized move higher. Buy dips.  Looking anything like Sugar ?

mi/