In This Issue
Just The Facts
Copyright (c) 1998 Commodity Systems Inc.
(CSI). All rights are reserved.
|Just the Facts
(Part 2 of a series)
Exploring CSI's Fact Sheets and other Jargon
Last month we began a series
aimed at demystifying some of the concepts and jargon that are unique to our
service or the data vending industry. We discussed conversion factors, CSI
point values, trading units, commodity identification and such. This month we
will delve farther into the CSI Fact Sheets to find more valuable information
COMPUTING THE VALUE OF A ONE-TICK MOVE
The value of a full-tick minimum exchange move is an important consideration for calculating your market performance and exposure. The on-line UA fact sheets show this in a column titled "Minimum Tick." This value, when multiplied by the "CSI Point Value" (see 9/98 CTJ) provides the value of a one-tick move in the given market. The difference between a CSI point and the exchanges' reporting increments can cause confusion. For example, the CME's Cattle contract shows a Minimum Tick of 2.5 CSI points in the on-line UA fact sheet, but live cattle's terminal digit is posted in increments of 2 or 3 points between reported ticks. Typically, live cattle may be posted as 46.37, 46.40, 46.42, 46.45, etc., but this is a shorthand convenience. The actual prices used for evaluation purposes would be 46.375, 46.400, 46.425, and 46.450. The Minimum Tick value shown in UA is set so that all tabulated and charted price readings can be displayed in their exchange-sanctioned form, but internally manipulated in their exact valuation. This consideration becomes more important when splicing together back-adjusted computed series, which could otherwise gradually diverge from their true representative values.
Throughout the commodity markets,
you may find inconsistencies that only make sense when you understand the
history behind them. For example, in the CBT Corn market, a one-point move is
valued at $6.25, because a conversion factor (see 9/98 CTJ) of -1 represents
that the prices are quoted in eighths of a cent. In the early years of corn
trading, the minimum move for corn was quoted in eighths. Today the minimum
move is measured in quarters of a cent, but if this change were imposed, it
would render imprecise the distant past corn history.
SWITCHING MONTHS AND THEIR MEANING
The selection of trading months for creating computed contracts is another area that generates many questions, because UA users are obliged to take a set of default delivery months or provide a list of their own. Switching months are shown in our fact sheets, but are excluded from the defaults. We are often asked what switching months are and how they affect continuous prices. Switching months are short-term, lightly traded delivery months. They are typically only followed by speculators or hedgers who want to remain in a futures market for a few more days, in spite of the imminent demise of the nearest future contract they are currently trading. Hence, they wish to "switch" to the next contract before taking or providing delivery of the actual product. Gold, for example, has "Active Months" of February, April, June, August, October and December. However, information is also available on the brief January, March, May, July, September and November switching-month contracts.
UA does not normally use "switching months" in its computed contracts because of their obvious illiquidity and low volume. In fact, if a user wants UA to regularly roll into one of these contracts, it would have to be designated an active (valid) month in the on-line fact sheets. The fact sheets are editable by simply clicking on the desired entry, changing it, and pressing the enter key.
There could be some confusion with
our system in cases where traders give less attention to what might otherwise
be considered a valid, normal delivery month for a given commodity. A trader
might want to ignore the activity in a specific delivery month (all August Pork
Bellies, for example), in which case that month could be designated as a
"switching month" in the UA fact sheets. Our lists suggest viable delivery
months, but you may take exception and reclassify them according to your own
preferences. This sort of artificial manipulation should be done with care and
DAY-ONLY AND 24-HOUR TRADING MARKETS
An increasingly confusing
matter for virtually everyone concerns trade data from the pits versus trade
data from electronic sessions, which may encompass 24-hour time periods. This
was a fairly simple matter when the CME first introduced GLOBEX® for
after-hours trading. We preserved one CSI commodity number for the combined
(official) trade results, and introduced another new CSI number for the pit
session data that we captured from market activity. That worked pretty well for
the currencies, Treasury issues and such. However, with simultaneous pit and
electronic screen trading now occurring at many exchanges, the lines of
demarcation are becoming increasingly blurred. The "Footnotes" of our fact
sheets include a lot of fine print explaining how GLOBEX, Project A, APT, etc.
are represented in the database. We plan an in-depth article about CSI's
coverage of electronic exchanges and sessions within the next few months. This
is an ever-evolving topic, so check this Journal for updates as time goes by.
24-HOUR TRADING ON HOLIDAYS
Since 24-hour markets provide an implicit invitation to international investors, trading on local holidays is permitted. However this may easily lead to a misunderstanding when interpreting the daily data. The exchanges typically do not post settlement prices on holidays, forcing all of the activity into the following afternoon report. A GLOBEX market that trades over a Monday holiday in the U.S., for example, will typically be posted showing a Sunday evening opening, and a Tuesday afternoon close. The summary data for the two-day period is routinely shown opposite a Tuesday date. In other words, the activity that transpires from Sunday evening until Tuesday afternoon is all summarized as though the entire 48-hour session occurred on Tuesday. A similar effect is possible in the event of a mid-week holiday.
When viewing market data with
UA, there are many instances where unexpected step-function jumps or drops in
price, volume or open interest occur. There are also cases where gaps in
date continuity appear, which may cause concern. To answer questions
about these events when viewing a market, simply pull down the fact sheet by
clicking on the fact sheet icon and click on the commodity in question.
Click the footnote symbol (on the left) for details regarding the selected
commodity or cash price series. You may quickly answer your concern
without having to call CSI service for help.
MAXIMUM MONTHS FORWARD
The maximum months forward
column in our fact sheets is useful for several portfolio applications.
It tells you how many months before delivery a typical contract is introduced
for trading. A value of 15, for example, means that a typical contract
has a life of 15 months. Using this information, along with the list of
active trading months, will tell you approximately how many contracts might be
expected to trade at a given time. CBT Corn, for example, has a maximum
months forward value of 16, and normal trading months of 3,5,7,9 and 12.
With five delivery months, each trading for 16 months, you could expect about
seven contracts to be active at any time. This information is useful in
designing near-contract groups and computed contracts in your portfolio.
FACT SHEETS REVISION
In mid-September, we revised Unfair Advantage's fact sheets to include corrected minimum tick values for several commodities and a new "first date" column, which tells the first day on file for each commodity. These enhancements should make it easier to understand the data received from CSI.
UA users may download the new factsheet file (factfile.adm) from our web site (http://www.csidata.com). It should be stored in the \UA directory. Because the new factsheet file is designed to overwrite the original one, any customized entries (such as modified conversion factors or revised contract lists) will be lost upon installation. Changes may be re-entered into the new factsheets as desired.
Much of the information presented
here is available at various locations throughout our fact sheets and user
manuals. These documents are updated periodically in an ongoing effort to walk
the fine line between providing a crippling overabundance of information and
delivering incomplete or cryptic explanations. Our intent is to make every
customer a data banking expert. Your input helps us identify areas of
documentation that we might clarify to help us reach this goal. Please
contact us with your concerns, so that we can help you to maximize your service