How to READ the Commitments of Traders (COT) Report

I thought it would be a good idea to explain how I personally reviewing the weekly CFTC Commitments of Traders (COT) report especially for Crude oil. First thing to note is the very fact that the analysis of this report is only one aspect of the whole analysis process and serves as corroboration of what I am seeing in the market.

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COT Report for WTI Crude oil as of February 18

The managed money sector net sold 26.687 contracts of WTI Crude oil as of February 18 (Options and Futures combined) with a long liquidation of 15.326 contracts and 11.261 short position contracts got into the market. Looking at the net hold postions we can observe a decrease since January.

You can see the full details here: https://www.cmegroup.com/tools-information/quikstrike/commitment-of-traders-energy.html

Brent Crude Oil COT Report February 10, 2015

Besides of the WTI Crude Oil COT Report we should also consider a look into the COT Report for Brent Crude Oil Futures and Options combined as well as NYMEX and ICE combined. With that said, we can see a total Open Interest of 2,663,517 of which Managed Money is long positioned with 269,674 contracts and short positiond with 114,800 contracts makes a net long position of 154,874 contracts.

Money Managers were net buyers of 15,046 contracts with a long liquidation of 2,062 contracts and a short covering of 17,108 contracts in the week ended February 10, 2015.

Source:
ICE COT Report
COT Report

US Natural Gas COT Report February 13, 2015

The Composite US Natural Gas Futures and Options combined as of February 10, 2015 shows a Total Open Interest of 3,906,030 of which Managed Money is long positioned with 365,330 contracts and short positioned with 415,345 contracts makes a net short exposure of 50,015 contracts. We can see a long liquidation of 10,816 contracts and an increase in short positions by 8,261 makes Money Managers net sellers of 19,077 contracts in the week ended February 10.

Source: COT Reports

WTI Crude Oil COT Report February 13, 2015

Looking at last week's COT Report for WTI Crude Oil Options and Futures combined as well as NYMEX and ICE combined, we can observe a total Open Interest of 3,474,449 of which Managed Money is overwhelmingly long positioned with 342,819 long contracts and 119,517 short contracts. We can see in the Managed Money section a long liquidation of 11,346 contracts and a short covering of 12,147 contracts makes a net buying of 801 contracts in the week ended February 10.

Long Liquidation = Long position close
Short Covering = Short position close

Altogether the US Total Petroleum (RBOB Gasoline, Heating Oil etc.) Futures and Options Combined as of February 10, 2015 shows a Total Open Interest of 4,302,505 of which Managed Money are long positioned with 463,419 contracts and short positioned with 219,013 contracts. In the week ended February 10, long positions decreased by 12,801 and short positions decreased by 11,896 with net selling of 905 contracts.

Source: COT Reports

WTI Crude Oil COT Report 27.01-03.02

With looking at last week's COT Report Options and Futures combined as well as NYMEX and ICE combined, we can observe a total Open Interest of 3,459,029 of which Managed Money is overwhelmingly long positioned with 354,165 long contracts and 131,664 short contracts. Long positions decreased by 4,248 longs and short positions increased by 2,219 shorts makes Money Managers net sellers of combined 6,467 contracts of WTI Crude Oil in the week ended February 3.

The 'Other Reportables' (Retail Traders) are also more long positioned with 209,519 long contracts and 60,018 short contracts. In the week ended February 3, long positions decreased by 17,990 and short positions decreased by 16,750 makes the 'Other Reportables' net sellers of 1,740 contracts.

Here is the COT Report for the week ended February 3, 2015. Learn more about Open Interest and the COT Report.

Open Interest And COT Report

Every Firday we should consider a look into the CFTC Commitments of Traders report out of affirmation purposes. Here is a short description about the COT report:

The Commitments of Traders (COT) reports provide a breakdown of each Tuesday’s open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC.

Important to point out are the release dates of this reports as well:

The Commitments of Traders reports are released at 3:30 p.m. Eastern time. The Futures Only reports and Futures and Options Combined reports are usually released on Friday. The release usually includes data from the previous Tuesday. Federal holidays may delay release by one or two days.

With that, we know the reports provide informations of each Tuesday's (weekly) open interest and usually relased on a Friday. But what is open interest?

Open Interest

For the sake of simplicity 'open interest' could also be referred as a trader's open position that are not closed or delivered on a particular day. Here the defination from CFTC:

Open interest is the total of all futures and/or option contracts entered into and not yet offset by a transaction, by delivery, by exercise, etc. The aggregate of all long open interest is equal to the aggregate of all short open interest.

Example:
Day 1: Trader S buys 1 contract and R sells 1 contract = 1 Open Interest
Day 2: Trader Y buys 3 contracts and X sells 3 contracts = 4 Open Interest
Day 3: Trader X buys 1 contract and S sells 1 contract = 3 Open Interest

Note: X closed one short position of his 3 shorts and S closed his long position, while Y still holds three open long positions and R one short position. So, we have three open longs and three open shorts in the market makes a open interest of 3 as the total of all long open interest is equal to the total of all short open interest.

What is volume then?

Volume is the number of business done in a particular market during a given period of time. It is the measure of activity between sellers and buyers. So, from the previous example the volume during the days are:

Day 1: 1 volume
Day 2: 3 volume
Day 3: 1 volume
Three days volume: 5

COT Reports

Back to the subject COT Report and looking on the CFTC website's list, we can see several reports for the various market sectors splitted in a Long or Short Format as well as Futures only and Futures and Options Combined makeup:

Let's assume we would like to analyze the report for the WTI Crude oil market (Petroleum and Products). Firstly we consider to keep an eye on the Futures and Options Combined Long Format report. Secondly we combine the NYMEX and ICE data. Why? Why should we leave out all the beautiful data and looking only at some Futures data?

Here is a screenshot form the COT report for WTI Crude oil with the week ended January 27, 2015. Tip: You can use CTRL+F to find the Crude Oil section rather than scrolling around.

Put the two together, we can see a open interest of 3,298,086. You should keep the closest attention to the 'Managed Money' section as this represents professional related guys such as hedge funds. Now with looking at this, we can observe an increase by 13,067 long positions and an increase by 10,025 short ppositions (NYMEX + ICE). This makes a managed money net buying of 3,042 long contracts in the week ended January 27, 2015. Additionally we can see that the managed money is positioned more to the long side with a ratio of 3:1.

It will be interesting to see the number of closed short positions in the next report that will be released on this Friday. Because of all the short covering and stop runs the number should be huge. We'll see.

Anyway, stay open minded and happy as success is a habit!