Can you trade using IB Financial Models?
Tried trading before but couldn't really get into it with the way technical analysis skips the theory and you just end up drawing a bunch of lines on a stock chart.
What would happen if I were to say, take a company and build a typical banking model (DCF/Comps/Precedents ) and then use that Enterprise Value to trade over/under-valuations? I suppose this would more accurately be investing, not trading, but would it be possible to beat the market this way?
"The market can remain irrational longer than you can remain solvent"
This is investing. Buying below what you deem to be fair market value and selling when the market over values what you deem to be fair market value, and vice versa. Do this and you are more likely to be successful in the long run than by trading technicals. Just ask the Oracle of Omaha.
Like I said, the sentiment is the same. But securities valuation relies on the present value of cash flow...the value of the enterprise. Commodities relies supply and demand - what makes something cheap or expensive in the future depends on the cash flow from buying or selling only, rather than what is produced by the actual commodity.
Answer this for me...what makes natural gas more or less expensive in the future? How can you determine whether or not its a good value today? What are you willing to pay for it now? You can only speculate - there is no model to predict the cash flow.
I am well aware of natural gas and how it is traded...that is what I do for a living. What you just described then, is that if it is storage spreads only, the price will never change. Storage spreads are not really daily balancing items, but seasonal...pricing the end of season storage for summer and winter (Nov1 and Apr1). The daily price movements are more about pricing in the coal to gas switching that you can pick up or drop off based on where you see the end of the season storage number coming out. BalMo swaps are more about watching the weather. LNG is a completely different beast...the amount of LNG export capacity coming online in the next four years is like adding a completely new region of the US, but obviously this is price dependent on global LNG prices in JKM or NBP markets, or South America (Cheniere's cargos have mostly gone south). This adds even more potential volatility depending on your view of utilization of these facilities. I agree its more complicated, but you are still speculating on what those supply and demand assumptions are and the trade is based on your view on their subsequent impact.
Lets not even get into cost of production and pipeline and infrastructure constraints for actually moving the gas to HH.
I agree you can model it, but you cannot model the value of the cash flows, which was the point of the OPs post.
Do you trade BalMo swaps or do you prefer swing swaps? Better to collect the daily cash difference if you're right, no?