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CHAPTER 9 - Opening Up on Open Interest > SOME REAL TRADES
SOME REAL TRADES
I’d like to show you some real trades I have had based on this observation of price, OI, and volume. The trades I’m showing here were actually on my hot line, so these are not “after the facts were known” trades. The first, Figure 9.4, is lumber in the late summer of 2004 when prices had been in a large rally with an increase in OI. As you know, that is supposedly bullish. However, here the commercials were increasing their short positions (the dotted line). Heck, they just about were the total short position, and down came lumber (price).
Shortly after this decline lumber staged a nice trading rally with an opportunity to make more than $5,000 on a $1,500 investment in less than 40 days. Is there anything that might have tipped us off to such a potential up move? Most certainly. The commercials became very heavy buyers. As Figure 9.5 shows, they increased their long position (here the dotted line shows just their longs). As we can see, while OI dwindled, the commercials’ long position was greatly increased, suggesting a rally was nearby. And it sure enough was!