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To: LauA who wrote (7736)	7/13/1999 11:11:00 AM
From: Daniel Chisholm	Respond to of 78495

OT re: futures position trading No personal experience with this, but I do find it interesting and have read about it, studied it a bit, and thought about it a lot. Two points: 1 - Many contracts have a "cost of carry", in which later-dated contracts trade at a premium to closer-dated contracts or the spot market. This frequently represents the cost of storage and/or the interest costs that a corresponding "physical" buy and hold transaction would cost. An annual 2% or 9% cost of carry might not invalidate the ability to earn a profit through eventual mean-reversion, however it is a cost you must factor into your analysis. Cost of storage (and therefore carry cost of the futures contracts) is lower for gold than say, wheat or oil. 2 - Even if mean reversion eventually occurs, it could take surprisingly long, and the price might decline quite a bit more in the meantime (this might make it difficult, psychologically, to stick with the trade). Two or three years ago when copper fell to 80 or 75 cents, it was noted that this would be a good entry point since that was below production cost. As far as I know (I haven't traded it and therefore haven't followed it real closely) copper is still lower than that today. And I hear that 10, 15 or 20 years ago there was an absolute annihilation in sugar. World sugar now trades at about 10 cents (I think that level is more or less historically correct), however it did fall a while ago to under (??) 1 cent. I don't know if it would have been profitable to enter a mean-reversion position trade, say, at for or five cents before this happened, and hold out until a profit was reached. To say nothing of the psychological difficulty of actually carrying through with something that we can see in hindsight to have been a difficult though nonetheless eventually profitable (?) trade. - Daniel P.S. Gosh Mike B, you mention TA and look what happens to the thread... ;-) P.P.S. to Mike B, glad to hear your futures tuition was so cheap. For me, every single trade I made (Yen and CAD shorts) was profitable at some point, yet every single trade was eventually closed out at a loss. My Yen short lost me more money that any other trade I have ever made, including my second-largest-ever loser, my SBUX short(!). To have been right (I still think) and to have lost so much, I think that there is a lesson there trying to teach itself to me... Hopefully I'll figure out the lesson -- the tuition was so expensive!

To: LauA who wrote (7736)	7/13/1999 1:00:00 PM
From: jeffbas	Read Replies (1) \| Respond to of 78495

Futures position trading w/o leverage. I think that is sound way to do it. However, I think that buying the best managed copper company, for example, at a cyclical low in the copper price is a better strategy (but you can't do that with all commodities). You will get a safe increase in the leverage with the leading stock. You have no time limit on the correctness of your judgment. You do not have to pay for any forward contract premium to the spot price.