The transition to Futures trading

[skc]

TH, In your experience, can an edge be gained by trading against (scaling into a position perhaps?) against a wider than "normal" deviation as it gets very close to expiry ... or is that being a bit unrealistic?

There are instos who arb the futures vs cash. However, since you can't actually trade the cash index, you need to buy/sell the underlying constituents. So to do such a strategy you will need co-located HFT bots executing basket orders at low latencies with low commission. It's not a strategy that can be used by retails.

 

[barney]

There are instos who arb the futures vs cash. However, since you can't actually trade the cash index, you need to buy/sell the underlying constituents. So to do such a strategy you will need co-located HFT bots executing basket orders at low latencies with low commission. It's not a strategy that can be used by retails.

Thanks for the explanation SKC,

I guess from a retailers point of view, trading Futures successfully is being able to recognise when a deviation from the present "real value" has been reached (based on a given time frame), and then trading that "out of sync" position in the right direction? .....

Simple !!

 

[Trembling Hand]

Thanks for the explanation SKC,

I guess from a retailers point of view, trading Futures successfully is being able to recognise when a deviation from the present "real value" has been reached (based on a given time frame), and then trading that "out of sync" position in the right direction? .....

Simple !!

Not always. The futures will drag the Index along most of the time. So if the futures move somewhere its more than likely that equities will follow the futs rather than the futs roll back towards the equities .

Remember us futures traders are smarter than the silly slow old equities boys. :

 

[kid hustlr]

lol.

also CanoZ I liked your explanation about the futures/index relation but you said something in there about hedging. forget that imo best to assume everyone is a punter at all times.

---

As an aside I can't stress how good this guy's video and website are. Highly recommend for anyone even thinking about the futures game.

http://www.youtube.com/watch?v=EYMIPmgRb_M

 

[skc]

Not always. The futures will drag the Index along most of the time. So if the futures move somewhere its more than likely that equities will follow the futs rather than the futs roll back towards the equities .

Sometimes you get a tiny edge by say buying equity on a futures spike. My guess is it happens when there's a localised overhang in a stock's market depth. But the edge is tiny... probably just let you get to a breakeven position quickly so you can pray for a runner without any risk.

Remember us futures traders are smarter than the silly slow old equities boys. :

Highly debatable that any of us can be described as "smart".

 

[CanOz]

lol.

also CanoZ I liked your explanation about the futures/index relation but you said something in there about hedging. forget that imo best to assume everyone is a punter at all times.

---

As an aside I can't stress how good this guy's video and website are. Highly recommend for anyone even thinking about the futures game.

http://www.youtube.com/watch?v=EYMIPmgRb_M

Yeah he is good.

I'm not affiliated with Jigsaw Trading but they are testing a new trade room with an Aussie expat bund trader. ITs pretty good and i reckon if you subscribed to the DOM tools Pete might let ya into the trade room for free for a week or so while they test it...Once they go live i don't think it'll be that expensive anyway.

 

[barney]

Remember us futures traders are smarter than the silly slow old equities boys. :

.........

 

[artist]

Not always. The futures will drag the Index along most of the time. So if the futures move somewhere its more than likely that equities will follow the futs rather than the futs roll back towards the equities .

ABSTRACT

This paper empirically examines the intraday price relationship between S&P 500 futures and the S&P 500 index using minute-to-minute data. Three-stage least-squares regression is used to estimate lead and lag relationships with estimates for expiration days of the S&P 500 futures compared with estimates for days prior to expiration. The results suggest that futures price movements consistently lead index movements by twenty to forty-five minutes while movements in the index rarely affect futures beyond one minute.

(From "The Temporal Price Relationship between S&P 500 Futures and the S&P 500 Index" - http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.1987.tb04368.x/abstract ) (Subscription / purchase is needed to access the full paper.)

 

[Trembling Hand]

Not always. The futures will drag the Index along most of the time. So if the futures move somewhere its more than likely that equities will follow the futs rather than the futs roll back towards the equities .

Remember us futures traders are smarter than the silly slow old equities boys. :

Who will win this battle?



Index in Blue futs are the candles.

 

[CanOz]

The index won, futures popped...

 

[Trembling Hand]

The index won, futures popped...

How funny is that? State something as a certainty and only minutes later you have ya ar$e handed to you.

 

[kid hustlr]

i wonder how much pain the arb bots/arb firms can handle. like if the spread continues to widen do they have a puke point or is it just a case of do more?

 

[Trembling Hand]

i wonder how much pain the arb bots/arb firms can handle. like if the spread continues to widen do they have a puke point or is it just a case of do more?

No because it will come back at some point. When the contract expires it will be the same.

 

[kid hustlr]

No because it will come back at some point. When the contract expires it will be the same.

yeah i hear you on that but surely theres some kind of holding/margin cost involved which in theory if it got beyond a certain point they would have to liquidate?

 

[Trembling Hand]

yeah i hear you on that but surely theres some kind of holding/margin cost involved which in theory if it got beyond a certain point they would have to liquidate?

Yeah don't know. I don't think so though. I mean how out of whack could it get? 20 points would be a lot, 50 extreme. Not that much pain.

 

[skc]

yeah i hear you on that but surely theres some kind of holding/margin cost involved which in theory if it got beyond a certain point they would have to liquidate?

There's no market risk in arbing the index/futures. There's only execution risk. If it diverge further you'd put more on, as long as you have enough margin.

The holding cost is relevant but only before you open the trade. After you've put on the spread, you'd always be better waiting for it to converge. Any holding cost by that time is sunk.

It would take a really stupid insto to use up all their margin and be forced to close their position when the divergence is the greatest... so it's probably happened a few times

 

[kid hustlr]

There's no market risk in arbing the index/futures. There's only execution risk. If it diverge further you'd put more on, as long as you have enough margin.

The holding cost is relevant but only before you open the trade. After you've put on the spread, you'd always be better waiting for it to converge. Any holding cost by that time is sunk.

It would take a really stupid insto to use up all their margin and be forced to close their position when the divergence is the greatest... so it's probably happened a few times

yeah bolded is what I was getting at. hard conversation for the arb desk to say 'ignore the margin call for now we'll have the cash in 3 months'

 

[skyQuake]

yeah bolded is what I was getting at. hard conversation for the arb desk to say 'ignore the margin call for now we'll have the cash in 3 months'

Thats what the line of credit is for

But given how many arb funds are out there, if it gets too out of whack, others will come in and 'save' you

 

[pavilion103]

Long 92, original stop 83.
Now BE

 

[pavilion103]

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