Recent content by FastandFurious

i thought equating the notional values should be enough?

when doing a pairs trade, how do you look at the charts and what you trade? For example, the price difference between XOM-CVX is minimal 69.18(XOM)-68.96(CVX) would you trade it 1:1, meaning buy and sell 100 shares each? However, for other pairs such as MRK-PFE, the price difference...

right, but my question is, do most people trade it 1:2 or 1:1? What are the benefits of each

I can see where volatility be a good play here. I can take the historical volatility of both and do a ratio. However, if I just want to be dollar weighted and trade the volatility, it would be 1 MRK to 2 PFE no? On other spreads such as XOM-CVX, there is no doubling...why?

When trading spreads such as MRK vs. PFE whose closing price is 30.10 and 15.96 respectively, do you do 1:2 to balance out the dollar amount?

the cost of carry is essentially what you are trading. SPY are receipts of its underlying equities.

in terms of % moves then yes, initiating at 0 dollar difference is the way to go. Just a quick follow up question. In order to spread anything, any market (intra or intermarket) we just have to balance out the notional value no? Besides yield spreads, DV01 is better

trade the actual spread.

I guess I just find that hard to believe (though I never looked at an order book and price action of the two) that it will take SPY to move 10 ticks and ES to move only 4. Last time I checked, both books are pretty stacked.

maybe you can clear things up a little bit for me. I understand that to be dollar neutral, 1 Emini is 500 shares of SPY. However, Emini trades in .25 ticks and SPY trades in $.01 and 500 shares for a .01 move is only $5. if Emini moves 1 point on a 1 lot (4 price levels), that's $50 ($12.50 x 4)...

According to CME, the contract size for Emini is "$50 x E-mini S&P 500 futures price" Let's just say that the ESU9 settled at 984.50 and SPY closed at 98.81 (Actual settlements of 7/31/2009) so with the information above, Notional value of Emini is: $50 * 984.50 = 49,225 Value of SPY...

when spreading between the front month futures contract versus the corresponding ETF, how do you weight the spread to be dollar neutral? For example, ESU9 versus SPY. Also, when spreading dow future versus Emini, how do you weight the spread to be dollar neutral?