Ex: Crack spreads, intra-commodity spreads along the curve or regional spreads.
Are these strategies quantitative/systematic or discretionary in nature? What are some great resources on relative value trading, particularly in context to the energy markets?
No such thing as "true value investing" in energy or commodities in general. What your talking about is more finding arbitrage opportunities in a marketplace. That is actually what any kind of commodity prop trading is about.
To do such a thing you need an understanding of the supply/demand dynamics of such a market. Likewise you need to understand what is the purpose of a curve, regional spread. To understand those tools, monty has already posted a thread with all the best books that list out of all those tools.
While for the supply/demand dynamics that shit ain't written in a book or anywhere, you need to start from the ground up. The EIA website for instance, if you want to know about crack spreads look at the IESO, NYISO, PJM sites.
Thank you very much once again for your insight into the energy marcellus_wallace, that's exactly what I had in mind. I'm actually interested in the oil and natural gas futures markets however I'm yet to read any book that focuses exclusively on those markets. I also have to admit that I only have a vague idea of the purpose of regional or curve spread in context to the energy markets. As for the books, I've read quite a few books that give a general overview of the futures markets (namely Schwager on Futures and the Futures Game) and I'm curious if this was the list that you were referring to:
Electricity Markets: Pricing, Structures and Economics Energy Trading and Investing Liar's Poker Moneyball Monkey Business The King of Oil The New New Thing The Smartest Guys in The Room Trading Commodities and Financial Futures: A Step by Step Guide to Mastering the Markets, 3rd Trading Natural Gas Understanding Today's Electricity Business Understanding Today's Natural Gas Business Source: //www.wallstreetoasis.com/forums/energy-trading-fundamental-vs-technical
I've actually read Liar's Poker, Monkey Business, the Smartest Guys in the Room and Trading Commodities and Financial Futures. What books would you advise me to read in the pursuit of gaining the tools to understand the intricacies of a relative value strategy?
That is the list, I read smartest guys in the room to laugh. But the first real book I read was "Trading Natural Gas" it's very dated but overall gets the points across and not much has truly changed. Energy Trading and Investing is also very good and is more new and relevant has things like LNG in it.
As for what a curve or regional spread is, those books explain what they are used for. A regional spread is just the difference between value for two points. A curve is just looking at the ability to borrow something today and get it back tomorrow (really begins with the idea of cost of money). The true value becomes in understanding the supply/demand dynamics of that market.
For instance XtoY spread is $2, but the costs to get that commodity there is $3.50. If you believe the demand in that market is there you would go long that spread.
Thanks again for your prompt insight and direction, MW. I'll definately look into buying Trading Natural Gas and another book called 'Oil 101' which seems to be quite popular: http://www.amazon.ca/Oil-101-Morgan-Downey/dp/0982039204
that is a list of my fave books.. not a energy check list... some are more for fun and some are more energy focused. Trading Nat Gas and Understanding Today's Electricity Business were handed out in my analyst training and great intro reads
Energy relative value is my bread and butter. I second all the recommendations. Not sure if it was mentioned but there was a guy from Enron who ended up on the UBS desk that wrote a book too. Pretty good but dry. It was on NatGas. Can't remember the name.
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