OI1: Cracking the Code of Commodity Spread Trading ft. Mauritz van den Worm
Top Traders Unplugged
Liquidity Issues and Spread Position Exit
This chapter explores the challenges of exiting a spread position due to liquidity issues and highlights the advantage of being able to hold onto a position. It also discusses finding alternative solutions to transportation problems in the commodities market.
You are invited to an eye-opening conversation with Mauritz van den Worm, a quant researcher at Polarstar, a commodities-focused hedge fund in Cape Town, South Africa, hosted by Moritz Seibert. In this inaugural episode of the Open Interest series, Mauritz takes us on a journey through the fascinating world of commodity spreads. We explore not only calendar spreads but also delve into cross-market substitution spreads, location arbitrage trades, and processing margin spreads.
Discover how PolarStar navigates the intricate South African commodity markets and the critical role they play in their portfolio. Additionally, Mauritz shares an intriguing firsthand account of PolarStar's position in the US versus European grain spreads at the onset of Russia's invasion of Ukraine. Learn how a simultaneous limit-up in the US and limit-down in Europe led to what Mauritz humorously refers to as "a few gray hairs." This is a must-listen for anyone intrigued by the complexities and strategies behind commodity trading.
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Episode TimeStamps:
02:09 - Introduction to the new series
03:28 - Introduction to Mauritz van den Worm and PolarStar Management
09:53 - A deep dive into the South African market
16:26 - What kind of trader is Polar Star Management?
19:55 - Entering and exiting trades
23:37 - How PolarStar Management establishes and analyzes trades
30:53 - How PolarStar uses data
33:39 - Different kinds of maize (corn)
35:07 - How you size a spread within a portfolio
39:39 - The role and importance of storage
45:14 - Adjusting for seasonality
47:06 - Looking back on the last 2 years
49:47 - Why did traders not want European wheat?
55:46 - What happened to the wheat market?
56:58 - How tough is the commodity space?
59:16 - Thanks for listening
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