Abstract
This paper introduces a model of commodity price speculation and proves that the optimal trading strategy is of the (S,s) form when a no expected loss condition holds. A strong form of this condition is that the retail price charged to consumers at time t exceeds the expected wholesale price of the commodity at time t+1, i.e.
$$p^r_t \ge \beta E\{p_{t+1}|p_t,x_t\}$$
, where β ∈(0,1) is the speculator’s discount factor.