University of Hong Kong Trading Workshop. Class 8 Commodities Workshop. David Lo. Agenda. 1. What is Commodity ? .CRB? 2. Correlation between commodities & other markets 3. Spot, Forward/Futures and Options Strategy on Commodities. 1. What is Commodity ?.
Commodities can be classified as follow :
2. Grains & Oilseeds
3. Meals, Livestock
4. Fibres & Timber
<RJCRB01> & <RJCRB02> give information about the constituents.
<0#.RJCRB> shows all the constituents & pricing of each component.
vs. other markets
Spot, Forwards/Futures & Options Strategy
USA cents per American gallon
(but No.6 oil in $ / bbl)
Singapore $ per barrel (but fuel oil in $/mt)
Arab Gulf $ per barrel
(but naphtha & fuel oil in $/mt)
Cash prices are the prices for which the commodity is sold at the
various market locations.
The Futures price represents the current market opinion of what
the commodity will be worth at some time in the future.
Under normal circumstances of adequate supply, the price of the
physical commodity for future delivery will be approximately
equal to the present cash price, plus the amount it costs to carry
or store the commodity from the present to the month of
delivery. Futures = Spot + basis
These costs, known as carrying charges, determine the normal
premium of futures over cash.
carrying charges (cost of carry)
As a result, one would ordinarily expect to see an upward trend
to the prices of distant contract months.
Such a market condition is known as contango and is typical of
many futures markets.
The opposite of contango is backwardation, a market condition
where the nearby month trades at a higher price relative to the
Such a price relationship usually indicates a tightness of supply;
a market can also be in backwardation when seasonal factors
2.350 => 6.394