Some tips for trading Just Spreads calendar spreads on the Interactive Brokers Trading Platform

Transcription

1 Some tips for trading Just Spreads calendar spreads on the Interactive Brokers Trading Platform Firstly my standard Interactive Brokers platform setup showing Trader Dashboard : Unrealized PnL in base currency (AUD for me) Realized PnL in base currency Current available funds Current Initial Margin Net Liquidation value These can be setup from the configuration option Followed by separate tabs (quote monitors) for each commodity I trade Configure option Trader Dashboard Quote monitor tabs A current filled Nat Gas (NG) trade, showing a good til cancelled (GTC) profit objective (PO) order

2 I have used the above live natural gas (NG) trade as an example for taking the data provided by Just Spreads (see below) and putting it into Interactive Brokers platform speak. Here are a few simple rules I use to ensure that I have placed the trades correctly. First determine the correct contract code and exchange for your trade, followed by the contract months. These are on the Just Spreads Spread Trade Opportunity (New STO s) in one form or another (see notes on pic below). For our example the commodity is Natural Gas and the contract code is NG. For the exchange you can get the info off the Just Spreads website, but can mostly be summed up with CME for live cattle and lean hogs (and Eurodollar), CBOT for grains, all the Soys plus wheat and corn and NYMEX for energy that is gases and oils. Sugar, cotton, cocoa and coffee are NYBOT (but subscription fees high on IB, $70 per month) and the ASX for 90 day bank bill futures. So for our proposed calendar spread we now know we have NYMEX as the exchange, natural gas as the commodity and NG as the contract code. Next we need to ascertain the contract months we are trading followed by the direction we are taking on the Interactive Brokers platform, this can be entertaining. In the example we can see, short OCT/long DEC (and also NG V3:NGZ3), the long/short (or buy/sell) is the info you require for the Interactive Brokers platform, the contract code and month codes are only useful if you have the esignal platform. From this data we know we need to enter SELL OCT and BUY DEC. Also note that the direction of the second leg of the trade is the direction we need to trade the spread on the Interactive Brokers platform. As the second leg is BUY DEC we must BUY the spread, which is we are going long, which is all back to front to the data in the STO s. So we are going long in this example, which is we are buying the spread. We are looking for the price to increase to be profitable. Now to interpret the data presented and turn it into Interactive Brokers speak. Referring to the data and the chart (bit hard to see clearly on the scanned chart) we can see that we are down below the zero line and dealing with negative numbers, with a suggested entry of -233 and an initial profit objective of All of this telling us we should enter short (or sell) our calendar spread at -233 and when it gets to -306 take our profits and run. If we try this on the Interactive Brokers platform we will be broker. Our mind needs consider this all in the reverse (as although we enter the data on the platform as described above we are trading in the opposite direction on the platform. We need to BUY (or go LONG) for the spread when placing the trade on the Interactive Brokers platform. This has the effect, as well as what is described just above, of shifting the decimal point of our trade as well as changing the sign. So for this trade we wish to enter long at better than (ie less than or equal to). For a profit, using the example, it would be as a SELL order (looking on the platform view of my current trade it is set at which was an updated suggestion from Just Spreads. So we have a GTC (good til cancelled) SELL order at as the profit taker.

3 This provides the directions to enter each leg into the IB platform dialog and the second leg also tells us the direction to place the spread The tab and the market section can give the commodity and its code

4 Below are screen shots of the IB platform showing the natural gas order (NG) being placed, with various annotations to provide a greater understanding (or is that confusion?). In one of your previously set up quote monitors, left mouse click any line and type the contract code (NG in this case) and press enter

5 And presto. you get a list from which to choose. Being natural gas we would choose the NYMEX exchange Under the NYMEX exchange data select combinations, futures spreads (directed) and finally.nymex (USD)

6 Using the direction of the back leg we wish to BUY our NG spread (ie go LONG). You can select the SELL option if the back leg was a SELL Click OK..or tick box saying don t display this message again Leave this ratio set at 1 Leaving you with this dialog box to enter the required data

7 Enter your SELL Leg Enter your BUY leg

8 You need to be mindful of this as some seasonal exit dates can be close to the expiry date, although the expiry month may be later. You can get the expiry date details off the IB platform Select yes as this allows you to view the price movement of your trade

9 You can use this dialog to confirm your order details. We are going to BUY our NG calendar spread (we want price to go up for a profit, ie the spread to get greater). And we wish to BUY the DEC13 and SELL the OCT13. After all that we get the above 4 lines on our quote monitor..don t worry we are getting closer. The top line is our spread line the others are, the underlying (the NG Index in this case), followed by our two futures contracts that make up our calendar spread, showing each ones expiry month and year.

10 You need to left mouse click on the top line (in the trade area) to commence creating the pending order. If the exchange is not trading, you will get this dialog box. If the exchange is trading you can select on the BUY or SELL live data to create your order (would be a BUY for us in this case). Enter your order details, Action BUY Time in Force DAY (not GTC), you want it to cancel at the end of the trading day if not filled. Quantity 1 (or however many you wish to trade) Order Type Usually LIMIT, but may be market Limit Price in this instance Then left mouse click on Create Order

11 You now should have an order line as per the above. Again check, from left to right that you have it all correct. As they say measure twice, cut once! 2 Left mouse clicking on the Transmit should bring up the Order Preview window. I say should as it will depend on how you have set your trade preferences. If not sure, right mouse click and select check margin from menu and it will bring up the Order Preview window. 3 1 This is the last opportunity to double check your pending order against your trade sheet. Once satisfied, left mouse click on Override and Transmit

12 If the exchange is closed when you place the pending order, you will get this message, select OK You have now placed your pending order and waiting for it to be filled, when the market next opens. As it is a day order, the order will only last for one market open day and then auto cancel if not filled. If you wish to cancel the pending order then select cancel and the order will be removed from the paltform

13 Once your order is filled, then you can consider placing an order for your profit taking. The creation of the profit taker order will be the subject of a separate document. Below is an example of a pending order for profit taking. Also remember that you can NOT place a STOP LOSS order. Your risk must be managed manually.