Advanced Positioning, Flow, and Sentiment Analysis in Commodity Markets, 2nd Edition

CHAPTER 9Advanced OBOS Analysis – Extremes in Sentiment and Risk

Chapter objectives

• 9.1 The OBOS Framework – Clustering and Position Sizes
• 9.2 OBOS Factor Indicators
• 9.3 Commodity Risk Premia – Positioning Analysis and Risk Management

In Chapter 8, the Overbought/Oversold (OBOS) framework was introduced.

In this chapter, the framework is extended to include different positioning metrics such as Clustering and Position Size and also to make use of a wider set of variables like the VIX, Financial Conditions Indices (FCIs), and the dollar index (DXY) within the framework, to better understand positioning dynamics.

The use of Positioning Analysis in the risk management of commodity risk premia strategies is also covered.

9.1 The OBOS Framework – Clustering and Position Sizes

In Section 8.2.1, long and short Concentration were used in calculation of the Positioning Components in the OBOS framework.¹ The flexibility of the OBOS framework allows for different positioning metrics such as Clustering to be used in the calculation of the Positioning Components. This can add an extra dimension to the framework, provide further insight into positioning profiles, and refine trading signals.

9.1.1 OBOS Clustering Indicator

In the OBOS Clustering indicator, the Pricing and Curve Components remain unchanged, but long and short Clustering is used in the Positioning Components calculation as follows:²

For long (short) positions:

where

See Table 2.2 for abbreviations.

Figure 9.1