Commodities as an investment are often sought by investors for their low correlation to stocks. Commodities can be bought outright and the physical commodity owned, the futures can be bought, or ETFs can be owned.
Commodities can be broken down into three categories.
- Metals - gold, silver, platinum, palladium, and copper
- Agricultural - corn, soybeans, wheat, rice, cocoa, coffee, cotton, sugar, pork bellies and cattle
- Energy - oil, natural gas and gasoline
ORATS covers US equity options and some commodities have ETFs that have options on them. Metals and energy ETFs are the more popular ETFs. Here are some examples sorted by call open interest (cOi). Call open interest are the total open contracts for all call options in the ETF:
Gold and silver lead the pack, energy follows, and agricultural ETFs have the least options' action.
Here are the commodity tracking ETFs: Notice the small open interests.
Here's a look at a top performing backtest for DBC, the Commodity Index Tracking Fund. Backtesting tip: for low liquidity options like DBC it is a good idea to set the maximum width of the bid ask spread that you are willing to trade. You can set this with "Market Width Ratio" criteria. In this example I chose 1% as the widest spread relative to the strike price to enter a trade:
Interesting here is the rally of the index, the orange line, during a troubled time for the stock market in 2008.