Some brighter feelings than usual

I have been watching Orange Juice for a bit now as you know. While I do regret to say that I never took the opportunity to buy it when it came down to support at $1.35, I can say that I have been growing in conviction even more that my future lies heavily in commodity investing. Here's the main theory behind that, and if I've already written this before, please forgive me but just talking about it makes me feel better.

People love the idea of investing in real estate because it's real, holds value and over time is likely to increase in value. As nice as it is in theory to hold something that will rise in value over time, there are several barriers to entry and difficulties with real estate. When you finance a home, you are now obligated to pay a mortgage until it is either offset by rental income, or the house sells in the future, hopefully for a profit. You have to also pay yearly taxes and insurance on the house, along with maintenance and management, but in the end, you may sell that property at a significant profit with enough time and the right market conditions. It is easily a multi year process for many.

What if you could buy a pristine house for 50% off it's historical price, never have to actually pay a mortgage, insurance, or upkeep payment on it? What if you knew for a fact that in a matter of months or weeks you could sell it immediately for a 10-40% profit, or even more in a period of months? What if you didn't even have to purchase the home outright, but only had to prove to the bank that a portion of the money for the house was in your account? Well, with commodities you can do just that. It sounds too damn good to be true, that you could make such a high percent of return with so little cost, doesn't it?

I have spent some time creating a spreadsheet to figure out the best route for investing in OJ. I've looked at the costs involved with minimum account fees, commissions and so forth at my broker, Interactive Brokers. you can check that out here:

https://docs.google.com/spreadsheets/d/18d0ETu1r5P7xt861RO8cAB8-YRw4ABca4T1Gqv_MhvE/edit?usp=sharing

Seeing the numbers and how inexpensive it can be, and how profitable it can be, is really inspiring and uplifting, and I needed that as of late. The table on the bottom of the spreadsheet demonstrates buying 5 contracts OJ at $1.00 and rolling over the contracts before they expire. Each time the contracts are rolled over into new ones, you can see that the price had moved. The corresponding profit or loss is indicated on the right, while the total profit at the time of finally exiting the position was $48,750.

If I had actually purchased a contract of OJ when it hit $1.35 I would be up $1,575. That's not much, but it would have helped me get started.

The main reason I created the spreadsheet was to try and identify whether or not it would be better to roll the most recent ("Front month") contracts into the next month, or just initiate the trade on a contract that had 1 year of time on it to begin with, thus removing my need to roll any contracts, because there wouldn't be any expiring.

The interesting thing you will notice on the top table, is that the cumulative extra cost (Cumulative Value differential per contract) from buying a front month and rolling it out to a contract that expires a year later, adds up to be a cost increase of $562.50. At first this discouraged me, because I thought "That's a lot of money to lose just to save on the costs of rolling into new contracts every 60 days", but upon further contemplation I realized that it isn't an actual cost for the most part. Let me explain.

It's really not much different than buying 1,000 shares of a $2 stock ($2,000 value) and making $200 profit on it (10%), versus buying 1,000 shares of a $2.05 stock ($2,050 value) and making $200 profit on it (9.7%). The farther out contract is worth 2.6% more than the front month contract, yet price movement basically mimics the front month contract. The whole point of buying, is buying when prices are low and likely to produce a profitable move sometime soon. The only real drawback about buying a contract that costs 2.6% more, is that by the time that contract expires, theoretically you will have lost that 2.6% value that was priced in because of time value and other reasons. If it takes OJ a year to move and give you a profit, you probably didn't buy it low enough. But even then, just roll it into another contract and keep holding. I look forward to diving into these thoughts deeper in the future.

I also wanted to talk about investing in the total stock market long term. I saw a great YouTube video about it here:

The guy makes an excellent point about people trying to pick stocks, and that even the very best people in the long run can't outperform the overall market. The best strategy for most, is to simply go long the entire market index. I really liked this idea because it goes back to buying something that has real value, which the companies on the index do. It actually convinced me even more to go with Orange Juice instead though, because the market is SO big, it takes forever to grow. Orange Juice is a very thinly traded market in comparison, and much more volatile. Volatility is your friend when trading an asset that will never go to zero!

Here is what OJ is currently doing, and my current paper trades to test things out. I have some Options straddling OJ at $1.40. That simply means that either way OJ goes from $1.40, up or down, if it moves significantly enough I can make a profit, and if it doesn't I should only lose a little money as the time value of those options decay.

You will also notice I'm up $786 on a contract of OJ from $1.41 and the current price was $1.46ish.