Crowded hogs spread

Pavel Hála | Trading ideas | 19. 2. 2013

Lean hogs are good for spread trading. So good that many people are watching it. I’ve seen recommendations to enter this trade during past weeks in many newsletters and from people on twitter. The spread I’m talking about is HEM13-HEJ13. So as I said most people who wished to enter this spread are probably already in. But the price itself hasn’t moved much. I traded this spread few times and it was always successful trade for me. This year I passed it because the spread had risen unexpectedly in July last year and has been trading above average since then. So I don’t think it’s a great trade right now but the spread is very slow moving, risk is small and therefore RRR is good…so why not to try?

hem13-hej13_price

As you can see in the spreadcharts.com technical study above the price seems to be breaking up. Keep in mind it can be a false signal but as I said risk is small. I would set a stoploss slightly below 8.0. Seasonality is still strong and can easily push the spread above 11 or maybe even 12.

hem13-hej13_seasonality

If that happens I would take my profit and leave the trade. Remember this trade is quite crowded so staying too long in it isn’t a good idea. Although price is moving slow right now it can get volatile near the expiration when everybody is getting out. If you decide to try this trade then don’t forget to keep tight stoploss.

Liquidity is good:

hem13-hej13_volume

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