Which trading strategy seeks to profit from changes in the benefits and costs associated with commodity storage?

• A. Correlation trade
• B. Storage strategies
• C. Location spreads
• D. Short-sale strategies

Answer: (B)

The strategy that profits from changes in the benefits and costs associated with commodity storage is known as storage strategies. These strategies rely on the observation that the costs of storing commodities can fluctuate due to various factors, including seasonal demand, supply chain disruptions, and changes in market sentiment.

Storage strategies typically involve taking a long position in a commodity when the storage costs are low and the price is expected to rise, allowing the investor to profit from the difference between the purchase price and the selling price after the commodity is held in storage for a duration. Conversely, if storage costs rise or if the benefits derived from future prices diminish, these strategies may prompt investors to liquidate their positions or to rethink their storage scenarios.

Other strategies mentioned focus on different aspects of trading and do not specifically target changes in storage costs or benefits. For instance, correlation trades tackle the relationships between different assets rather than storage factors. Location spreads relate to price differences based on geographical factors, while short-sale strategies are concerned with profiting from declining prices rather than the dynamics of storage costs. Thus, storage strategies are uniquely suited to capitalize on the economics of holding commodities.