Tim Olson
47471b7700
- Flink update_bars debouncing - update_bars subscription idempotency bugfix - Price decimal correction bugfix of previous commit - Add GLM-5.1 model tag alongside renamed GLM-5 - Use short Anthropic model IDs (sonnet/haiku/opus) instead of full version strings - Allow @tags anywhere in message content, not just at start - Return hasOtherContent flag instead of trimmed rest string - Only trigger greeting stream when tag has no other content - Update workspace knowledge base references to platform/workspace and platform/shapes - Hierarchical knowledge base catalog - 151 Trading Strategies knowledge base articles - Shapes knowledge base article - MutateShapes tool instead of workspace patch
57 lines
3.2 KiB
Markdown
57 lines
3.2 KiB
Markdown
---
|
|
description: "Commodity futures strategy that uses CFTC Commitments of Traders (COT) hedging pressure data to identify long/short opportunities based on hedger and speculator positioning."
|
|
tags: [commodities, futures, cot, hedging-pressure, positioning]
|
|
---
|
|
|
|
# Trading Based on Hedging Pressure
|
|
|
|
**Section**: 9.2 | **Asset Class**: Commodities | **Type**: Positioning / Sentiment
|
|
|
|
## Overview
|
|
Hedgers and speculators have systematically different objectives in commodity futures markets. High hedger long positioning signals contango (excess hedging demand pushes futures prices up); high speculator long positioning signals backwardation. By reading the CFTC Commitments of Traders (COT) report, a trader can construct a zero-cost portfolio that exploits these positioning signals with a 6-month typical holding period.
|
|
|
|
## Construction / Mechanics
|
|
The "hedging pressure" (HP) for each group is defined as:
|
|
|
|
```
|
|
HP = (number of long contracts) / (total contracts: long + short)
|
|
```
|
|
|
|
HP lies between 0 and 1.
|
|
|
|
**Interpretation:**
|
|
- High hedgers' HP → indicative of contango
|
|
- Low hedgers' HP → indicative of backwardation
|
|
- High speculators' HP → indicative of backwardation
|
|
- Low speculators' HP → indicative of contango
|
|
|
|
**Portfolio construction:**
|
|
1. Rank all commodity futures by speculators' HP; divide the cross-section into upper and lower halves.
|
|
2. Within the upper half (higher speculator HP, i.e., backwardation signal):
|
|
- **Buy** futures that are in the **bottom quintile** by hedgers' HP (confirming low hedger demand, strong backwardation signal)
|
|
3. Within the lower half (lower speculator HP, i.e., contango signal):
|
|
- **Sell** futures that are in the **top quintile** by hedgers' HP (confirming high hedger demand, strong contango signal)
|
|
|
|
The portfolio is zero-cost and rebalanced with typical formation and holding periods of 6 months.
|
|
|
|
## Return Profile
|
|
Profits when commodity futures that show strong backwardation signals (low hedger HP, high speculator HP) outperform those with strong contango signals. The strategy earns a risk premium for providing liquidity to hedgers who are willing to pay above-fair-value forward prices.
|
|
|
|
## Key Parameters / Signals
|
|
| Parameter | Description |
|
|
|-----------|-------------|
|
|
| HP (hedgers) | Long / (long + short) for commercial hedgers from COT report |
|
|
| HP (speculators) | Long / (long + short) for non-commercial speculators from COT |
|
|
| Holding period | Typically 6 months |
|
|
| Data source | CFTC Commitments of Traders (weekly) |
|
|
|
|
## Variations
|
|
- Use the net position (long minus short) as the signal rather than the ratio HP.
|
|
- Combine COT positioning with the roll-yield signal (Section 9.1) for a multi-factor commodity model.
|
|
|
|
## Notes
|
|
- COT data is published weekly with a 3-day lag, so the signal has limited use for high-frequency trading.
|
|
- The classification of "hedger" vs. "speculator" in COT data is self-reported and can be noisy; large commodity index funds are classified differently across report types (legacy vs. disaggregated COT).
|
|
- The 6-month holding period smooths over reporting noise but requires patience through short-term adverse moves.
|
|
- Strategy performance can degrade when large commodity index investors distort the COT positioning signals.
|