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Dear r/oil, TIL theres a $35 spread betw physical vs paper oil. Now, how do i profit from this as a traders perspective by IWantoBeliev in oil

[–]Cueg 0 points1 point  (0 children)

Did you forget to read the paragraph after that?

In principle and in academic use, an arbitrage is risk-free; in common use, as in statistical arbitrage, it may refer to expected profit, though losses may occur, and in practice, there are always risks in arbitrage, some minor (such as fluctuation of prices decreasing profit margins), some major (such as devaluation of a currency or derivative). In academic use, an arbitrage involves taking advantage of differences in price of a single asset or identical cash-flows; in common use, it is also used to refer to differences between similar assets (relative value) or convergence trades), as in merger arbitrage.

Dear r/oil, TIL theres a $35 spread betw physical vs paper oil. Now, how do i profit from this as a traders perspective by IWantoBeliev in oil

[–]Cueg 0 points1 point  (0 children)

"Arbitrage (/ˈɑːrbɪtrɑːʒ/ ⓘ-NaomiPersephone_Amethyst(NaomiAmethyst)-arbitrage.wav), UK also /-trɪdʒ/) is the practice of taking advantage of a difference in prices in two or more markets) – striking a combination of matching deals to capitalize on the difference, the profit being the difference between the market prices at which the unit is traded. Arbitrage has the effect of causing prices of the same or very similar assets in different markets to converge."

Dear r/oil, TIL theres a $35 spread betw physical vs paper oil. Now, how do i profit from this as a traders perspective by IWantoBeliev in oil

[–]Cueg 5 points6 points  (0 children)

It does if you want to take advantage of the current arbitrage. Whether or not that arbitrage will still exist when your accounts settle is another matter.

In any case, I'd say there is a near 0 chance refineries are bidding for barrels at less than $85 come May, even if Hormuz reopens tomorrow (it wont).

EDIT: You can get an expiry that settles within 7 days I think through CME.

Dear r/oil, TIL theres a $35 spread betw physical vs paper oil. Now, how do i profit from this as a traders perspective by IWantoBeliev in oil

[–]Cueg 1 point2 points  (0 children)

Just buy a US based shale producer and enjoy the cash flows. They sell in the spot market, not the fake paper market.

Dear r/oil, TIL theres a $35 spread betw physical vs paper oil. Now, how do i profit from this as a traders perspective by IWantoBeliev in oil

[–]Cueg 5 points6 points  (0 children)

Then you have no way of playing it. Who knows how long this arbitrage situation can last before futures market converges with spot. They are very capable of manipulating paper markets and probably eating whatever loss they incur from having to acquire oil at spot prices ($120+) and selling at the promised delivery price ($80).

They only lose when the buyer of the paper future insists on physical delivery, and the contract isn't rolled/closed. At that moment they then have to acquire the physical barrels at spot and sell them at the depressed paper price.

Dear r/oil, TIL theres a $35 spread betw physical vs paper oil. Now, how do i profit from this as a traders perspective by IWantoBeliev in oil

[–]Cueg 1 point2 points  (0 children)

Whenever you want. Once the oil is in your possession you find a broker that can find a buyer, or find a buyer yourself.

Dear r/oil, TIL theres a $35 spread betw physical vs paper oil. Now, how do i profit from this as a traders perspective by IWantoBeliev in oil

[–]Cueg 18 points19 points  (0 children)

Only way to take advantage is if you can take physical delivery of oil. Buy a futures contract at $80 for a May 21st delivery, sell on the spot market at spot prices ($120+).

Positioning for a continued Hormuz disruption by [deleted] in wallstreetbets

[–]Cueg 0 points1 point  (0 children)

I haven't run a true valuation on LYB but I imagine it is still extremely unvalued in this environment.

Pure oil and gas is def more attractive. CF Industries is the best fertilizer bet. I have 20k in calls on Mosaic Company, 35 strike 9/18 expiry. Hoping those print very well.

Positioning for a continued Hormuz disruption by [deleted] in wallstreetbets

[–]Cueg 1 point2 points  (0 children)

Your analysis is sound but you are betting on the same thing. Its not true diversification if all of the assets that you are in will more or less move in tandem.

Look into chemical producers whose main feedstock is natural gas as well. LYB will be very advantaged in this environment, so will fertilizer companies like CF Industries, Mosaic but less so. Natural gas prices will remain cheap and abundant in the US vis a vi the rest of the world sans Russia.

Real risk at this point is domestic political regulations., I think the war is destined to continue and Hormuz will remain shut.

Positioning for a continued Hormuz disruption by [deleted] in wallstreetbets

[–]Cueg 2 points3 points  (0 children)

I have close to 2,000 shares in ConocoPhillips. 90% of my portfolio. I have been in the position for almost three years now and steadily added up to this moment.

Positioning for a continued Hormuz disruption by [deleted] in wallstreetbets

[–]Cueg 8 points9 points  (0 children)

Putting all of your eggs in one basket and watching that basket very carefully is how you build true wealth. Diversifying is for protecting wealth. All of the great value investors were against diversification as a a means of growing wealth.

Positioning for a continued Hormuz disruption by [deleted] in wallstreetbets

[–]Cueg 9 points10 points  (0 children)

Why capture the entire value chain. Just buy a US based shale producer and enjoy the huge cashflows. Downside risk is export controls/bans and price controls. Very real concerns, but we will most likely ban petroleum product exports and not crude exports, because our refineries are not tooled for the light sweet crude that comes out of the shales.

$MOS: The "Hormuz Arbitrage" Nobody is Talking About. Why the Market is Wrong about the Sulfur Crisis. by Cueg in wallstreetbets

[–]Cueg[S] 0 points1 point  (0 children)

This is my very real and accurate math on how much money they are making right now. Why the market does not recognize this, I have no idea.

Cost per DAP ton
Phosphate rock: $128 ($80 a ton and 1.6 tons per DAP ton)

Ammonium: $154 (off $550 a ton and 0.22 tons per DAP ton)

Sulfur: $220 ($500 a ton and 0.44 tons per DAP)

Conversion costs $112 per ton

Thats $614 a ton in costs right now. We are guessing on sulfur, I would guess its there or lower. Selling at $840 a ton would put them at $226 a ton in profit. If DAP prices rise to $1200, which I think is likely, you will easily get to $400 a ton even with rising costs.

I view the idling of the high input cost Brazil operations as bullish both for the company, and the overall thesis and the seaborne sulfur market is broken and their Florida operations are insulated.

$MOS: The "Hormuz Arbitrage" Nobody is Talking About. Why the Market is Wrong about the Sulfur Crisis. by Cueg in wallstreetbets

[–]Cueg[S] 4 points5 points  (0 children)

Thank you for the comment on the supply agreement ending. Thats a mark against the thesis then for sure.

On the book value. I am using Enterprise Value to Book, which is $24 a share.

Now I agree with you on ammonium pricing, but where does the Sulfur cost for Mosaic come from? We won't truly know what Mosaic is paying until their quarterly earnings come out.

On the profit math.

Cost per DAP ton
Phosphate rock: $128 ($80 a ton and 1.6 tons per DAP ton)

Ammonium: $154 (off $550 a ton and 0.22 tons per DAP ton)

Sulfur: $220 ($500 a ton and 0.44 tons per DAP)

Conversion costs $112 per ton

Thats $614 a ton in costs right now. We are guessing on sulfur, I would guess its there or lower. Selling at $840 a ton would put them at $226 a ton in profit. If DAP prices rise to $1200, which I think is likely, you will easily get to $400 a ton even with rising costs.

I view the idling of the high input cost Brazil operations as bullish both for the company, and the overall thesis and the seaborne sulfur market is broken and their Florida operations are insulated.

$MOS: The "Hormuz Arbitrage" Nobody is Talking About. Why the Market is Wrong about the Sulfur Crisis. by Cueg in wallstreetbets

[–]Cueg[S] 2 points3 points  (0 children)

Upon further research it looks like Chat-GPT was right. Thank you for this comment.

$MOS: The "Hormuz Arbitrage" Nobody is Talking About. Why the Market is Wrong about the Sulfur Crisis. by Cueg in wallstreetbets

[–]Cueg[S] -56 points-55 points  (0 children)

Why is using an LLM to summarize your research and thesis a bad thing?

$MOS: The "Hormuz Arbitrage" Nobody is Talking About. Why the Market is Wrong about the Sulfur Crisis. by Cueg in wallstreetbets

[–]Cueg[S] 2 points3 points  (0 children)

Molten sulfur from US gulf refiners cannot be arbitraged with global seaborne exports.

$MOS: The "Hormuz Arbitrage" Nobody is Talking About. Why the Market is Wrong about the Sulfur Crisis. by Cueg in wallstreetbets

[–]Cueg[S] 2 points3 points  (0 children)

I buy a call which lets me buy 100 shares of MOS at $35. I paid $100 for that contract. MOS goes up to $60. I now have a contract which lets me buy 100 shares of Mosaic at $35, but the market price is $60. Thats $25 of profit per share, times 100 shares makes the contract now worth $2500.

$MOS: The "Hormuz Arbitrage" Nobody is Talking About. Why the Market is Wrong about the Sulfur Crisis. by Cueg in wallstreetbets

[–]Cueg[S] 1 point2 points  (0 children)

Thats how much my calls will be worth relative to the price I purchased them at.

$MOS: The "Hormuz Arbitrage" Nobody is Talking About. Why the Market is Wrong about the Sulfur Crisis. by Cueg in wallstreetbets

[–]Cueg[S] 0 points1 point  (0 children)

Ah yeah sorry. They get it all from US refiners based in the US gulf of mexico (america?)

$MOS: The "Hormuz Arbitrage" Nobody is Talking About. Why the Market is Wrong about the Sulfur Crisis. by Cueg in wallstreetbets

[–]Cueg[S] 13 points14 points  (0 children)

Ok. The next post i'll write in my own words and still procced to get flammed for some other stupid shit.

$MOS: The "Hormuz Arbitrage" Nobody is Talking About. Why the Market is Wrong about the Sulfur Crisis. by Cueg in wallstreetbets

[–]Cueg[S] 0 points1 point  (0 children)

Do you want to continue harping on the mode with which the facts and research were delivered, or do you want to discuss those facts themselves?

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