Prepared by Ira Epstein & Company
SIMPLE BULL SOYBEAN SPREAD
This market appears to be torn between fundamentals (namely harvest pressure–bearish) and technicals (a possible head & shoulders bottom–bullish.) Some of my clients have asked me how they can take advantage of this situation. In my opinion buying January soybeans and selling May soybeans at current levels fills this niche quite nicely.
By purchasing January and simultaneously selling May soybeans, margins are substantially reduced. Instead of an initial margin requirement of $1500 on a single contract, the initial margin requirement on a spread is $405. Therefore, less equity is tied up initiating this particular trade.
I am recommending entry at the current level, purchasing January Soybeans at a discount of 12 cents or greater to the May soybeans.
A stop close only of 8-10 cents should be used.
THE TED SPREAD
The TED involves buying U.S. Treasury bills and selling Eurodollars. The TED spread is a spread position of 90-day interest rate instruments guaranteed by the U.S. Treasury versus Eurodollars that are not guaranteed. This is considered to be a quality spread. When quality concerns increase, regardless of the cause or justification, conservative investors will shift funds to investments perceived as being safer. Therefore, the T-bills should always carry a premium over the Eurodollars. Margins on this particular spread are $225. I recommend entry here, using a stop of 10 points or ($250).
PLATINUM & GOLD
As long as the stock market continues to enjoy record growth, and inflation stays allegedly at bay, I believe that the gold market will continue in its sideways price pattern.
Platinum, on the other hand, technically looks very strong. The mere fact that supplies are tight and demand keeps increasing makes this market primed for a major breakout. Although the price has gone up $100 since Spring, the next technical target appears to be the $500 level.
The spread between gold and platinum has gained $100 over a period of 6 months. Buying January platinum and selling December gold as a spread has great potential; but caution is advised due to the volatility. Two (2) contracts of platinum (50 ozs.) are required to unequal one (1) contract of gold (100 oz.)in terms of contract size. This 1:2 ratio also affords the lowest margin requirement ($1500 initial margin). An approximate risk factor of about $12 is recommended.
Favorites
LONG DECEMBER CATTLE/SHORT APRIL CATTLE
With the recent cash price at about the 66-67 cent level the October contract appears to be gaining momentum. In fact it is currently 100 points premium to the December contract. With liquidation of the October contract now in process and continued support at the 66 cent level I am recommending buying December cattle; selling April cattle at current levels at 620 or greater. A close above 700 premium to the April should be consider as liquidation, thus keeping the risk at about 50-80 points.
I believe this spread is a prudent consideration when October sugar trades at a discount to (or cheaper than) March sugar. Margins should be about $220. I believe you should enter now, at the market using a stop of approximately 20 points stop ($230).
LONG OCTOBER 98 SUGAR/SHORT MARCH 98 SUGAR
The basic market posture of this spread is bearish, as is evident by you being short the front market (short March) versus the deferred (long October).
October 15, 1997
Ira Epstein & Company
223 West Jackson, 7th Floor, Chicago, Illinois
Added to the WWW 10-17-97
Last updated on 10-17-97
Hosted by:
One Crossroads Place
610 West Maple Ave, Suite WWW
Independence, MO 64050
(816) 252-4080
sysop@kcmo.com
