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I have also seen this done w/ linear regression weights instead of theoretical DV01s. I haven't traded either so I can't say which is better for sure but regression weighing seems more logical to me. DV01 weighting assumes a parallel shift in the curve. Regression weights take into...

What do you mean??? I was just trying to give the simplest example of cointegration with zero correlation I could think of. So what do you think the correlation is if not 0? I was trying to keep it concise but here's the logic: if B's expected return is positive when A is up - positive...

This stuff is much clearer with concrete examples. Here is a simple example of cointegration w/o correlation: Stock A and B only trade on alternate days. Stock A's return is random on days it trades, its price follows a random walk. Stock B's return is the same as yesterday's Stock A...

Some of us think this is good. Govt doing too much is bad and if you can't get bipartisan support for something chances are it is not worth doing. I usually vote for the most gridlock increasing candidate.

Check out the Southpark movie. I give it 2 thumbs up.

My other posts pretty much dealt with what I think are hard facts. Here is the other part of why I am skeptical about a lot of the flash order stories out there, which is more talking out of my ass. Say you have access to order flow, like the flash trade subscribers do. There are two main...

I am back from dealing with all my margin calls :) ... Here is an article that says Nasdaq flash orders are opt-out, on all the others it is opt-in. So you always should have the option to use a market order or marketable limit order that doesn't get seen. But it is possible your broker may...

Unless it has changed the outside investor is in the first loss position (I think shared up to 50/50 with the govt at their option) and the taxpayers are providing cheap leverage. The way it works approximately is for every $100 in assets the investor puts in $10, the govt will match $10 in...

Hi Pacific7, I don't have a lot of time now but I will post more later. One quick thing - thanks for the example, that is the kind of thing I was looking for, but I don't see how flash orders could be responsible for this. The trader's order wasn't a flash order, or at least you didn't...

Thanks, I think this is a interesting issue.

Hey Pacific 7- No offense taken but I am not convinced. And I am not trying to negate any discussion, just giving my opinion. I'll assume your facts here are correct, I don't think they lead to your conclusion. If a lot of volume is done by algos and the algos make money, so what? I can say...

Tradator, I've been doing a bit of reading about it and I see two concrete complaints and a bunch of nebulous vauge hype. But first I think you might be a bit unclear about what they are. My understanding is that they don't go in "the" book, only the book at a specific venue where they are...

I actually like historical VAR. You simulate how your porfolio would have performed over the last X time periods and rank the results. If you have 100 returns, then the worst is you 1% VAR, the 5th is your 5% VAR, etc. It gets you out of making questionable distribution assumptions. But it...

It looks like you are missing something about their methodology. From the normal distribution your worst 1% loss should be ~2.33 standard deviations below the mean. I get a return of around -60%. Do they tell you anything about the return type or distribution to use? They might be using...

I can think of one option use in pairs trading I like though. Put a wide near-costless collar both stocks. So if one stock gets bought out or something your pair loss is limited. Pair trading is usually a lot of little gains with a few big losses, capping the big losses would be nice. But...

Thanks, I guess that is better but still doesn't feel the way a pair trade should. You could make money on a big move even if the spread widened or lose on implied vol and theta with a converging spread. I think I just like your fantasy trade idea without a pair attached better!

I have thought about this and see a major problem with option pair trading that nobody has mentioned. Say my pair model tells me to go long 1 share of A and short 1 share of B. So if I am doing it w/ options I want the deltas to be equal. Lots of ways to do this, just assume long 2 ATM...

The first page of a google search on "etf share creation" clears this up. Here is the best link I saw: http://www.icifactbook.org/fb_sec3.html So basically the ETF publishes a "creation basket". You buy all the shares in the creation basket. Put them in a box and go to the drive through...

Hey Atticus, Do you think it is useless if you just use beta=1? I saw an interesting published strategy a while ago that is simultaneously long and short a bunch of straddles on individual stocks and just letting delta drift over time. Very high returns but crazy high volatility, I was...