ASX Stock Pairs Trade Journal

[skc]

What are you guys thoughts on VOC/MTU? The spread doesn’t yet seem to be narrowing as time passes.

Is it still within the realm of normal for an all stock merger or are there other issues weighing?

Doubts over ACCC approval?
Is VOC a potential target itself?
Shortage of VOC borrow?
Worries over MTU stand alone if it doesn’t proceed?

Thoughts appreciated.

No the spread isn't where you'd expect it to be.

I can't offer any more speculations than what you've posted... which are the same ones mentioned in this AFR piece

http://www.afr.com/street-talk/gran...bid-while-hedgies-steer-clear-20151026-gkicuo

Whilst the liquidity for either stock isn't great... the spread should be wide enough to entice hedge funds to make a play.

As to VOC being a target... sure it's plausible but we haven't really seen any offshore players make a bid in the local Telco scene. Unless it's an established player (e.g. Singtel), hwo are they going to benefit and build further scale? And wouldn't you be better off let VOC buy MTU, then make a play for the enlarged VOC, especially if there were to be any indigestion?

Personally I have closed my merger arb trade over the past few days. I didn't lose much and it's not really blowing out further. But the fact that it hasn't converged makes me think there is something going on that I don't know about. Having said that, I have seen on some rare occasion that there is even a spread on the last day of trading (e.g. NVN/FDC merger) so one should always be mindful that the market isn't all knowing all the time.

 

[craft]

Thanks for your thoughts guys.

No the spread isn't where you'd expect it to be.

The spread looks attractive to me even if it was just long MTU - but then I like MTU and could live with the deal failing.

~30% annualised or stuck with this dog.


Obviously for a short term time frame the risk/reward would be totally different.

Despite its performance MTU has never really attracted much intuitional interest so maybe it could just be slower than most to close in the absence of any heavy money conviction, especially if the usual suspects for Arb are shy about ACCC or Telco industry action as per the article you linked.

Time will tell I guess.

I'll leave the insightful answers to the other guys.
But for context here's the discount since offer announced. Based from 30m intra-day data.
View attachment 64800

Hey VS what's the data source and charting program?

 

[VSntchr]

Hey VS what's the data source and charting program?

Nothing exciting mate, just streaming data from my Iress trading platform into excel and then organising into an excel chart.

 

[craft]

Nothing exciting mate, just streaming data from my Iress trading platform into excel and then organising into an excel chart.

Thanks -

If I tell you how awesome you are any chance of throwing up an occasional update of that chart?

 

[VSntchr]

Thanks -

If I tell you how awesome you are any chance of throwing up an occasional update of that chart?

No problem. Happy to throw an update up every week. Will help keep me tuned into the situation - which is probably wise given that MTU is in the SMSF

 

[craft]

No problem. Happy to throw an update up every week. Will help keep me tuned into the situation - which is probably wise given that MTU is in the SMSF

u are awsome

Now pushing the flattery will get you everywhere theory. If I recall correctly you had some great charts/analysis tracking CCP PDL profitability - also wouldn't mind seeing them again.

Cheers

 

[VSntchr]

See the CCP thread Craft

As for pairs lately. I have been really struggling to fill the portfolio, however, the trades that I am finding have been absolute rippers! Bigger profit margins than usual and my win rate has been 85% since reporting season (vs. 79% for FY16 so far). It hasn't been smooth sailing though, alot of those winners have been big losers which reverted nicely after testing my patience :bowdown:

 

[sinner]

It hasn't been smooth sailing though, alot of those winners have been big losers which reverted nicely after testing my patience :bowdown:

Purely out of curiosity, mind posting a chart of one of these spreads with the time and ratio axis annotated with where you entered and exit?

 

[VSntchr]

Purely out of curiosity, mind posting a chart of one of these spreads with the time and ratio axis annotated with where you entered and exit?

PTF isn't the best for getting specific...but hopefully this does the trick.

 

[sinner]

PTF isn't the best for getting specific...but hopefully this does the trick.
View attachment 64887

Thanks. Dunno if you'll find this interesting or not but I pulled up a few charts based on that:

Ratio chart going back 2013, monthly bbands. IMHO one would be hard pressed to tell this apart from the chart of a single equity.



Above ratio divided by its SMA20, quarterly bbands.



Definitely not trying to pick holes or anything, purely curious. But looking at the above charts you have to wonder if it wouldn't be cheaper to trade single names against their SMA20 (or more ideally, a rolling optimised mean). Here's the broad market divided by it's SMA20, a bit narrower but otherwise essentially indistinguishable.

 

[VSntchr]

Definitely not trying to pick holes or anything, purely curious. But looking at the above charts you have to wonder if it wouldn't be cheaper to trade single names against their SMA20 (or more ideally, a rolling optimised mean). Here's the broad market divided by it's SMA20, a bit narrower but otherwise essentially indistinguishable.

View attachment 64892

Thanks mate, very interesting indeed. Always looking for new ideas and tangents to take my trading to new areas.
With that said - I like to stick to my knitting with my core strategies to avoid style drift..and I try to keep the open mindedness for any new strategies.

I like the idea of what you are suggesting. I don't doubt the possibility your correct and that many of the pairs I trade would appear to be more favourably traded on a single-leg mean reverting basis. Perhaps that just shows that some of those pairs are pairs I should be avoiding and I should be focusing more on the nice rotating-around-the-flat-lining-rolling-mean type pairs

There are certain characteristics of pairs trading that fit very well into my trading strategy portfolio, so sometimes (for me at least) it's not solely about the most efficient way to take a move from an instrument.

Certainly something to spark the mind though, thanks.

 

[VSntchr]

As we can see in the chart below, craft is clearly a wizard.:taz:

 

[VSntchr]

Not sure how many pairs traders use FPmarkets - but they have just updated their platform to be able to access centre-point orders...**DARK POOLS**:vader:

Sure was annoying to sit in the queue on some of the REITS watching countless orders go through as CP trades while my line didn't move.

I guess it comes down to "If you can't beat em, join em".

NOTE - they do attract an extra 0.5 bps of brokerage.

 

[edman79]

Not sure how many pairs traders use FPmarkets - but they have just updated their platform to be able to access centre-point orders...**DARK POOLS**:vader:

Sure was annoying to sit in the queue on some of the REITS watching countless orders go through as CP trades while my line didn't move.

I guess it comes down to "If you can't beat em, join em".

NOTE - they do attract an extra 0.5 bps of brokerage.

Yes,
I particularly like the way they used the word "revolutionary" in their email several times. Considering we have been watching these trades go through on their platform for many years. Add to the fact that it has been possible with IG for years. Other brokers like saxo also sometimes fill at centrepoint but don't allow you to place them specifically.

Better late than never FP

 

[skc]

Not sure how many pairs traders use FPmarkets - but they have just updated their platform to be able to access centre-point orders...**DARK POOLS**:vader:

Sure was annoying to sit in the queue on some of the REITS watching countless orders go through as CP trades while my line didn't move.

I guess it comes down to "If you can't beat em, join em".

NOTE - they do attract an extra 0.5 bps of brokerage.

I don't know how you trade without CP liquidity anymore. They have been on the rise for a long time, especially for the <$2 stocks like most REITs. 0.5bps is a small price to pay (although there's no reason why it isn't free) for the better fills.

Have fun playing around with it. It adds a new consideration to trading.

 

[VSntchr]

I don't know how you trade without CP liquidity anymore. They have been on the rise for a long time, especially for the <$2 stocks like most REITs. 0.5bps is a small price to pay (although there's no reason why it isn't free) for the better fills.

Have fun playing around with it. It adds a new consideration to trading.

Yeah! Like f**ing up my spreadsheet commission column!!!
LOL.
That aside, it will give me an extra decision to make when its 3:55pm and Im mid-way through the queue and don't want to risk the price moving away in the closing auction.

 

[skc]

Yeah! Like f**ing up my spreadsheet commission column!!!
LOL.
That aside, it will give me an extra decision to make when its 3:55pm and Im mid-way through the queue and don't want to risk the price moving away in the closing auction.

Does it automatically sweep any hidden liquidity? Or do you have to specifically place a CP order?

 

[VSntchr]

Does it automatically sweep any hidden liquidity? Or do you have to specifically place a CP order?

Well I was under the impression it was the latter. But after watching this it looks like it will sweep any hidden liquidity.

A 5bps extra cost is offset by *potentially* saving around 14bps in something that is priced like MGR at ~174.
Something that is priced at 1.00 will save closer to 25bps.

So the annoyance is worth the savings..now just have to make sure not to hit the CP prematurely :

 

[SilverRanger]

Does it automatically sweep any hidden liquidity? Or do you have to specifically place a CP order?

From what I read you will get it if you cross the spread, if available, or you can place a CP order specifically.

 

[peter2]

Why aren't the CP increments made a normal price step increment and therefore available to all?
Why does the ASX continually maintain advantages for some?

The ASX continually annoys me with their "old boys club" attitude and don't start me on what I think of Aust brokers.