MTO Spread Mean-Reversion Strategy Across Methanol and Polymer Futures

Summary

The script describes a spread-trading approach linking methanol futures with polyethylene and polypropylene futures. It estimates an MTO production margin by valuing the two polymer contracts together and subtracting the methanol input cost, adjusted for contract multipliers and stated production ratios. A rolling history is used to calculate the spread's mean and standard deviation, and the current spread is expressed as a z-score.

The strategy enters short-spread positions when the z-score is sufficiently positive and long-spread positions when it is sufficiently negative, then targets flat positions when the score returns near zero. It also includes a further-deviation stop condition. The code gives example contract choices, parameter values, and a backtest date range, but reports no backtest performance. It uses fixed ratios and a simple spread model; it does not address execution costs, contract roll effects, changing production economics, or synchronization risks across the three markets.

Key ideas

• The spread represents polymer output value minus the cost of methanol input, adjusted by contract multipliers and production ratios.
• A historical mean and standard deviation are used to calculate a z-score for the current spread.
• Large positive and negative deviations trigger opposing three-leg positions intended to profit from reversion.
• Positions are closed near the mean or when the spread moves farther against the trade.
• The script provides no performance results and relies on fixed production ratios and a simplified margin estimate.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.