EDGE SERIES TOOLS
Energy EDGE is a tool that was built to capture the volatility and wide P/L swings of the energy sector in a more tactical, reliable and quantifiable manner.
During mid-2018 to early-2019, we were baffled by the violent moves in the energy sector. Crude oil (/CL) dropped almost $30.00, while we were positioned on the wrong side of the move. Oil Futures (/CL) went from trading between its usual 25-35% implied volatility to almost 70% by October and November of 2018.
After this oil movement, we witnessed one of the most vicious rallies in Natural Gas – a very important statistical event. Researching this further, we discovered some of the seasonal patterns in the energy industry. The March and April contracts, now referred to as the “widow makers” of the Natural Gas Futures industry, featured an astonishing implied volatility jump from 40% to close to 160%! Natural Gas Futures (/NG), alone, moved well over $2.00 – $3.00 per contract, each amounting to $10,000 per $1.00.
Energy EDGE wades through this volatility to provide reliable and quantifiable data. If we find a breakdown of a relationship which has, over the past 20 years, “snapped back” in place each time it hits a certain level (all of which is measured and tracked by Energy EDGE), the odds are in our favor for participating in bringing back that broken-down relationship in line so that we can profit from it. With Energy EDGE, it’s as easy as that.
WHAT DOES ENERGY EDGE DO?
CHART PRICE ACTION, NOT THE UNDERLYING OF THE PRICE
What sets the EDGE series apart is traders now are able to compare any future contract against any other future contract, regardless of asset class. Energy EDGE looks at how much $$ each contract has moved, and displays this information in a chart.
The green line is the Light Sweet Crude Oil Futures (MAY 20). On the right hand side, notice how Energy EDGE shows the P/L impact of a 1 lot of /CL futures contract, rather than the current price of the oil futures index. Looking at /CL Futures (using the chart), we can say a 1 lot is down $40,670 from 01/01/20 – 04/01/20.
A SINGLE PANE FOR ALL EQUITY FUTURES CONTRACTS
With Energy EDGE, you can compare the entire energy complex on one chart. Again, notice each futures contract is displayed as the P/L impact of a 1 lot, rather than price. The lowest line on the chart is RBOB Gasoline (/RB) trading at -$57,729. RBOB Gasoline has underperformed a stronger Natural Gas (/NG) futures contract trading at -$16,160. The relative value trader might consider buying RBOB Gasoline and selling Natural Gas so let’s look at those 2 as a spread in our next chart.
BUILD COMPLEX FUTURES CHARTS IN SECONDS
Easily construct any permutation of 2 or 3 legged pair trades with adjustable contract sizes in each, while only showing the $$ P/L rather than how many pennies or dollars each one moved.
We already know that RBOB Gasoline is drastically underperforming Natural Gas Futures. RBOB Gasoline (/RB) was trading -$57,729 and Natural Gas (/NG) was trading -$16,160. The difference, $41,067, is the spread value for Natural Gas – RBOB Gasoline (/NG – /RB). That spread is charted as the top green line and it’s almost the highest level it’s traded (using the data on the chart). The highest it traded was a few weeks earlier, but we can see it’s “Rank” shows that it’s 91.34% close to it’s high.
ANALYZE THE PERCENTILE RANKINGS OF EACH SPREAD
Analyze the percentile rankings of each spread to better indicate potential turning points in the underlying instruments that make up the spread. Visual inspection is one thing, but quantifying exactly where the spread is relative to the timeframe is a must-have.
Follow the Rank of the various “crack spreads” above. Energy EDGE provides the easiest way to observe different variations of the crack spread.
Crack Spread refers to the overall pricing difference between a barrel of crude oil and the petroleum products refined from it. The crack spread is an industry-specific type of gross processing margin. You can learn more in Energy EDGE.
Purchase Energy EDGE for the low price of $997.
$997 – Energy EDGE
Energy EDGE – Trading Tool Built for ThinkorSwim
Includes 1.5hrs of Video Instruction
- ToS Installation
- Setup and Customization
- A Detailed Walkthrough
Products Plotted (Default)
- CL (Crude Oil)
- BZ (Brent Oil)
- HO (Heating Oil)
- RB (RBOB Gasoline)
- NG (Natural Gas)
- 3 “User Defined” Inputs
- Any Spread of Instruments Above
- 9 Variations of “The Crack Spread”
Oil Trading Education
- 1.5 hrs of Video
- The Gold-Oil Ratio Indicator