Entrima
Training:
Oil – Time Spread
Short description
Hedge (gasoline) storage capacity and lock in a future margin.
Capacity
You act in the role of an oil (products) trader.
You act in the capacity of aggressor.
Task
Your task is to analyse the forward curve. Identify whether the market is in ‘contango’ or ‘backwardation’.
In case of a steep contango, hedge (gasoline) storage capacity and lock in a nice margin (by selling the time spread; meaning, you simultaneoulsy buy and sell a term contract, whereby the contract you sell short has a longer time-to-maturity). Watch the value of this time spread to develop. Has your timing been ideal? Could you have improved your performance?
Objectives
The aim of this simulation is manifold, namely to understand the pricing of a time spread, to understand the volatility of the time spread and to understand the opportunity and risk that is related to those aspects.
The objective of this simulation is also to master the concept of asset-backed trading; in this case, hedging a physical asset, namely storage capacity. After all, by selling the time spread (setup a long position in one term contract while simultaneously seting up a short position in a further out term contract) you can secure the future margin.
Conclusion
At the end of the simulation, analyse your performance. See what you have done and when you have done this and whether it could have been optimised. This way, you learn and optimise your competences.
Financials
Your working capital at the start is 600.00.
Initial margin per contract is set at 20.00.
Exchange fee and clearing fee per traded contract is set at 0.01.
Position limit per contract: 5.