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Whether to buy or sell the correlation is driven by the dynamics of the spread. What is needed is an estimate of the fair value, or relative value, of the spread. -segv

The dispersion of the full index is need not necessarily be a factor in your decision for the basket trade. I understand that you want it, but you do not need it to trade a dispersion basket. -segv

Well at least we are on the same page now. The money is these days is being made in proxy selection. I do not know anyone who is actually trading full replications, dispersion, arbitrage, basket, or otherwise. The methodology depends on the objectives. If you want spread risk, hedging...

We can. Your statement is not true unless the basket contains all of the constituents of the index. If the basket contains fewer than all of the index constitutents, you need to optimize the weighting and asset selection to find the best proxy for the index price. -segv

The synthetic asset is the sum of the weighted asset prices. What do you mean the weights are given? Are you referring to the constituent weights as specified by the index? Using the index weights will not yield good results if you are trying to find a proxy for the entire basket of...

I suggest you move on to more productive areas of research. In the end, after you have wasted hundreds of hours in smokey casino play, you will find that expert card counting earns far less than the minimum wage. The casino industry caters to loosers, and it is not in their interest to allow...

24:1 -segv

Seriously. Do not try to trade silly chart patterns, you would be better served by darts. Hell, maybe even lawn darts. -segv

More like a "wedgie". -segv

Why not just sell puts naked now, buy them back after the move, then sell calls? -segv

For the interested reader, there is a nice tutorial on PCA here: http://csnet.otago.ac.nz/cosc453/student_tutorials/principal_components.pdf#search=%22principal%20component%20analysis%22 One might also consider cointegration techniques as an alternative for determining the constituent...

You are all working too hard. Making $4,000 a day is extremely easy. Sell 75 SPX 1295 C and sell 75 SPX 1295 P. There you go, about $4000.00 a day without any nonsense. You might even get a little bit of edge if you call down to the floor. -segv

Yeah I thought of that after I clicked, but you cannot edit polls. :) -segv

I decided it would be worth a poll to see who would play in an Elitetrader online NL Hold'em tournament. Cast your vote over here http://www.elitetrader.com/vb/showthread.php?s=&threadid=75218 . -segv

Would you participate in an online NL Texas Hold'em tournament for Elitetrader members only? Details: An online tournament through a reputed Internet card room, low buy-in ~$50 with one re-buy option.

We should have an Elitetrader tournament. -segv

I would also be very interested to know how this was structured, Don. -segv

No you are not. But, it does make the name "Elitetrader" kind of amusing. -segv

What an astonishing prediction "up" is. If we define "up" as a one-cent price increase from the closing price Friday, you have a ~98.35% chance of being correct at any point in the Monday trading session. So tell me Miss Cleo, exactly how "up" will the QQQQ be on Monday? Where will the QQQQ...

All good points, Cache. I guess I should have qualified and said "Get an attorney experienced in proprietary trading, hedge funds, and securities law". An experienced attorney will usually know an experience accountant in this business, and vice versa. -segv