Black Boxes and Bonds

[mcurto]

Rufus,

Yes, my brothers group does the same thing (not DRW, a much smaller group), their theo engines compute fair value and the trader executes. I am actually based on the CBOT floor in between the 30-year options and futures pits, and I overheard one of Donnie's traders saying they do have guys trading the basis and yield curve spreads with TT, not sure how big of an operation it is. They used to have a trader in the 2-year pit when the volume was in the pit, but he is no longer in there.

Mike Curto

 

[FredBloggs]

Quote from mcurto:

Yes, most of these groups trade the basis. My brother works for a big basis group in Chicago and they are essentially automated with the trader actually pulling the trigger, and their program working their theoretical levels for the spread along with other parameters. These guys are good during less volatile times, but I would like to see a program do the same with the 1980's Treasury market, double volatility from what it is now, and some of these machines might be turned off, or relied upon less. Would make things more interesting to say the least.

mike - interesting post as always.

taking this idea to the next level....

why isnt the big money just going fishing then - running the market a few ticks to bring the volatility back, screw the machines and take the bunce?

its a dog eat dog world afterall.

 

[rufus_4000]

Quote from mcurto:

Rufus,

Yes, my brothers group does the same thing (not DRW, a much smaller group), their theo engines compute fair value and the trader executes. I am actually based on the CBOT floor in between the 30-year options and futures pits, and I overheard one of Donnie's traders saying they do have guys trading the basis and yield curve spreads with TT, not sure how big of an operation it is. They used to have a trader in the 2-year pit when the volume was in the pit, but he is no longer in there.

Mike Curto

Mike, good info, it has been a while since I talked to fred schuster and those guys (over a year). Their operation is well run. In a way, I won't be surprised if DRW started trading the basis, they have the capital, after all. Actually, one second ... I could look it up! I believe DRW is definitely trading the basis, they are a participant on BrokerTec (I still have some good contacts there), I just looked it up.

Interesting, they were talking about BrokerTec integration a year and a half ago. Heh, I guess that's what capital can do.