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In the immortal words from Monty Python, "and now for something completely different." I tend to cover a lot of different topics in this column and have a habit of jumping around. I blame it on the Internet. I mean, who can focus on anything for more than about 12 seconds at a time these days? The TV people have already figured this out. The next time you watch a program or even a commercial, note how long any one image is left on the screen. Believe me, they know that if they leave the same scene up there for too long we will either flip the channel, text a friend, say "forget TV, I'm getting back on the Internet," or justly simply zone out.

Every day legions of investors who use their computers to trade and invest unwittingly join what I refer to as the "Alt Tab Generation." In brief, we start our computers and we open up as many Internet windows and software programs as our computer's memory will allow. Then as soon as we get bored with one thing we simply "Alt Tab" to the next. Or the one after that. Or the one after that. Then the phone rings. "Hey, did you see what bonds are doing?" "No, let me take a look!" Alt Tab, Alt Tab, Alt Tab. Gee, I wonder how my bond fund is reacting to this. Better take a look. Alt Tab, Alt Tab, Alt Tab. Yikes, I have a conference call this afternoon, now what time was that at? Alt Tab, Alt Tab, Alt Tab. I wonder if any celebrities have died today. Alt Tab, Alt Tab, Alt Tab. No deaths, but what's this - "Pop Star Donates Hair to Charity" (actual AOL headline). Hmmm, this sounds important, I'd better read about it.

In a nutshell, while productivity has soared in recent decades thanks in large part to the massive increase in computing power, it would seem that today there is something of an inverse correlation between productivity and the number of programs and browser windows open at one time. Just a word of warning.

Focusing and Finding New Ideas

The ironic thing about the above is that while we have more information than ever before at our fingertips it remains difficult at times to maximize this due to the shear volume of information available and the aforementioned tendency to avoid focusing on one task at a time. And this is unfortunate, because we've never had a better chance to "expand our horizons." This week I am going to venture a bit out into the Netherlands and talk about something that most investors never think about. Yes, you guessed it - commodity spreads. Now at this point people with an interest in commodity spreads perk up a bit and the rest of the investing public, well, does the phrase "Alt Tab" ring a bell?

But if you are in the latter category I am going to ask you to fight the urge to "Alt Tab" away and to go ahead and "expand your horizons." Now, granted maybe you never will trade a commodity spread, but one thing to ponder is this:

What if the way the stock market of today is the way it will be for a long time to come? In other words, what if the boom times of the '80s and '90s never quite come back? Then what? It never hurts to at least consider your alternatives. Also, I promise that if you read this entire article, at the end no one will burst into your room, wrestle you to the floor, put you in a head lock and force you to sell short soybeans. Well, okay, in this litigious age perhaps I should not "promise" that that won't happen. Let's just say I am reasonably certain that the odds are low. (Nevertheless, my lawyer has advised me to inform you that if by chance someone does attempt to wrestle you to the floor while insisting that you trade soybeans, it is purely coincidental and reading this article has nothing to do with it. Not only do we live in the "Alt Tab" generation but also the CYA generation.)

Crude Oil versus Soybeans

Okay, I warned you we were going off the beaten path. Did you know that crude oil and soybeans are highly seasonal products? If you stopped and thought it for a moment, it would seem obvious.

Crude oil is typically in high demand during the summer (driving season) and late fall (gearing up for cold weather) and demand tends to slack off, interestingly, as winter approaches as the majority of "winter preparation buying" has already been done. As for soybeans, most think beans are most likely to rally during the summer, especially if the weather is abnormal - i.e., floods or droughts. But in fact the most bullish time for beans is late winter into late spring, as that is when either a) there are no beans in the ground, or, b) planting is going on. Once beans start to grow (late June, early July) and especially as harvest is going on (early fall), price premiums tend to fall as fears of an abnormal harvest abate. Traders can take advantage of this information in a variety of ways.

Consider the following "strategy":

• Go long September crude oil and short November soybeans on June 30th and exit those positions at the end of July.
• Go long November crude oil and short November soybeans on August 31st and exit those positions at the end of September.
• Go short January crude oil and long January soybeans on October 31st and exit those positions at the end of November.

Position sizing note: All trades listed in Table 1 below assume a 1-lot of crude oil and a 1-lot of soybeans unless the total dollar value of the crude oil contract is 1.75 times or more than the dollar value of the soybean contract. Then two soybean contracts are bought or sold short. Those instances are marked with an asterisk (*) in Table 1.

Sounds a bit too simple, but consider the results displayed in Table 1. Starting in 2001, three of the first four trades were losers. From there, things looked a bit "better."

Table 1 - Crude Oil versus Soybeans "when the time is right"

As you can see in Table 1:

• 18 of 24 trades (or 75%) showed a profit
• The average winning trade was +$5,252
• The average losing trade was -$2,685.
• The profit/loss ratio was 1.98 to 1.
• The largest winning trade was $12,613 during September of 2004.
• The largest losing trade was -$7,735 during September 2006.

Chart 1 displays the results trade-by-trade and Chart 2 displays the running total of P/L.


Chart 1 - Crude Oil versus Soybeans trade-by-trade



Chart 2 - Cumulative P/L

Summary

So is the point of all this that every investor should now focus all of his or her attention (such as it is) and investment assets on the crude oil/soybean spread three months out of every year? Hardly. As we enter into July there is absolutely no guarantee that crude oil will gain on beans in the next 31 days. In fact, as this is written things are going decidedly in the wrong direction (crude oil is tanking and beans are down only a few cents). Nevertheless, whether this method gains or losses money during the month of July does not prove nor disprove the long-term viability of this method (one thing that was not mentioned but which is essential to any trading method is some form of risk control designed to cut a loss before things get out of hand).

The real point this week is simply to get you to understand that there is a world of opportunities out there, most of which a generation of investors raised on the "I must focus on putting all of my money into the stock market because the stock market always goes up" mantra have never even considered. With the growth and ease of trading witnessed in futures, options and ETFs in recent years, virtually all investors would do well to at least consider the possibility of "expanding their horizons."

Now if you will excuse me, I have to go bid on some hair.

Jay Kaeppel
Staff Writer and Author of Seasonal Stock Market Trends
Optionetics.com ~ Your Options Education Site

Questions for Jay? Please visit "Ask the Traders" through the discussion board on the Optionetics.com home page.

NOTES:

To learn more about Seasonal Stock Market Trends: The Definitive Guide to Calendar-Based Stock Market Investing, please click here.

To sign up for a free 1-month trial of Optionetics ETF Investor newsletter, edited by Jay Kaeppel and Clare White, you can do so by clicking here.

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