Why 50ES - 1000UB vs 5ES - 100UB ?
ES / NQ is interesting but I find NQ to be too volatile to be “relevant” ...
Does Spreads, Forward curves or Options give intraday clues ? (ES)
- Thread starter Sekiyo
- Start date
Why 50ES - 1000UB vs 5ES - 100UB ?
ES / NQ is interesting but I find NQ to be too volatile to be “relevant” ...
That's the same relationship, but the cash value of the spread is ten times that amount.
It makes the math easy.
ES/NQ in that ratio, (two lots ES vs one lot NQ) I use because it can smooth out index moves. ES is much more liquid and so it leads sometimes.
This is a chart of YM/ES today. Short covering after sustained down move lasting days. It's got a small range but they trade it for size. Pretty sure cash market, futures, and return swaps. I think most of it is the the delta one desks hedging client exposure.
Do you trade spreads or outrights only ?
What do you think about multi legs spreads ?
As for NQ and YM + RTY
I watch the print on the time and sales.
Since they still correlate with the ES but ...
As you said ES is the beast and usually the leader.
Nice volume on ES/YM
About 5K on the spike that moved from ES to YM.
I like outrights, but the front month index spreads are nice.
They can be easier to figure out since there is so much less noise in the action.
An index spread is not a direct hedge for fixed income exposure (outright index futures are), so there will be less participants who are willing and able to affect price.
It can make for obvious moves. Especially when they try to take advantage of the NYSE opening vol. The only problem for retail is capitalization, smart analysis, and after hours liquidity issues.
The most common spreads
Large Cap / Small Cap (10*YM - 150*RTY)
Growth / Value (40*NQ - 15*YM)
Cyclicals (20*NQ - 100*RTY)
Hedged Tech (20*NQ - 50*ES)
Hedged Value (5*YM - 50*ES)
These are all weighted with the CME hedge ratios and the formulas give the cash value of the spread contracts. They can also be combined.
Hedge funds love this shit. They also trade ETF and sector spreads. They can put huge size on this type of trade. It's great for swing trading.
https://www.cmegroup.com/clearing/margins/inters.html#pageNumber=1
There are many ways to trade these with different ratios.
They can be easier to figure out since there is so much less noise in the action.
An index spread is not a direct hedge for fixed income exposure (outright index futures are), so there will be less participants who are willing and able to affect price.
It can make for obvious moves. Especially when they try to take advantage of the NYSE opening vol. The only problem for retail is capitalization, smart analysis, and after hours liquidity issues.
The most common spreads
Large Cap / Small Cap (10*YM - 150*RTY)
Growth / Value (40*NQ - 15*YM)
Cyclicals (20*NQ - 100*RTY)
Hedged Tech (20*NQ - 50*ES)
Hedged Value (5*YM - 50*ES)
These are all weighted with the CME hedge ratios and the formulas give the cash value of the spread contracts. They can also be combined.
Hedge funds love this shit. They also trade ETF and sector spreads. They can put huge size on this type of trade. It's great for swing trading.
It depends. This spread is not very balanced.
Look up the ratios here. (the higher the credit the less risk, generally)
https://www.cmegroup.com/clearing/margins/inters.html#pageNumber=1
There are many ways to trade these with different ratios.
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What about the relationship btw ES and $SPX ?
I am going to check it out today.
Guess it's a crowded trade.
ES - SPX is an index basis spread. It's used by scalpers and day traders.
It's complicated, but there is a pricing model for the future based on the differential of funding rates associated with holding either instrument.
A bank (or HFT market maker) can liquidate a cash t-bill (pay the risk free rate), finance the purchase of equity securities, sell futures, and then either hold stock or loan it at the borrow rate.
This is called cash-and-carry. Reverse cash-and-carry is the opposite (buy futures, sell stock, pay borrow, receive risk free).
There's also a dividend to worry about.
This means that the futures are bought or sold against the (executable) net return expectation in both directions.
This is an arbitrage transaction for HFT market makers in the event of aggressive trading on globex. In other words, when the PREM (futures premium) trades outside a no-arbitrage range (as described above) HFT will execute this transaction and obtain a risk free profit.
(futures can drive the market up or down)
This provides liquidity to globex and facilitates volume-at-price.
(banks are taking advantage of this - they're pushing the market around)
These moments (when the basis spread widens) can offer important insight to traders who are trying to gauge demand for the hedging instrument against pricing on listed markets.
Also, execution desks serving institutional traders have algos that model market impact for execution and so the basis is involved in their willingness to execute orders (vol hedging, institutional rebalancing, order flow, etc.)
Thanks for your feedbacks.
You’re actually very knowledgeable.
Would you recommend reading material ?
Not sure ... you may have read Hull or stuff like that.
Using the PREM is like quant stuff. You have to denoise it, detrend it (even transform it) and then figure out what the data is telling you. It's really complicated to do that. But very worth it if you figure it out.
Some people will say that it is just noise, or there is no edge in it. That's bullshit. In the treasury market, the futures pros use the treasury basis to get edge. The same thing works for index futures.
You can read about some of it at this site.
https://www.programtrading.com/faq.htm
I talk about it in this thread.
https://www.elitetrader.com/et/threads/mrtopstep-loses-1-8m-in-flash-crash.339234/
I talk about what I do in this thread.
https://www.elitetrader.com/et/threads/lets-talk-about-moving-averages.346017/#post-5123831
If you watch this video, the guy talks about how much size his execution desk is doing in the E-mini's (thousands at a time). He also runs you through all the mechanics of it. (go to 1:13 to hear the funny stuff
)
(it's a great video to get an inside look at index trading)
In my opinion, you should know why there might be a big move in a basis spread during certain types of market events (topping, bottoming, consolidating, reversing).
The banks and market makers know that retail is (largely) unaware of it, so they can be more obvious in their actions. Since it's not well understood, they don't have to be so careful to hide everything they are doing (unlike the order flow manipulation/book manipulation).
It takes serious size to lift an offer in ES, or to clear out a bid - institutional size.
But, the guys manipulating the market know how to force retail speculators into doing this for them. HFT is manipulating the order book on both sides of the basis trade, and so they can get away with some pretty shady stuff.
Some people will say that it is just noise, or there is no edge in it. That's bullshit. In the treasury market, the futures pros use the treasury basis to get edge. The same thing works for index futures.
You can read about some of it at this site.
https://www.programtrading.com/faq.htm
I talk about it in this thread.
https://www.elitetrader.com/et/threads/mrtopstep-loses-1-8m-in-flash-crash.339234/
I talk about what I do in this thread.
https://www.elitetrader.com/et/threads/lets-talk-about-moving-averages.346017/#post-5123831
If you watch this video, the guy talks about how much size his execution desk is doing in the E-mini's (thousands at a time). He also runs you through all the mechanics of it. (go to 1:13 to hear the funny stuff
)In my opinion, you should know why there might be a big move in a basis spread during certain types of market events (topping, bottoming, consolidating, reversing).
The banks and market makers know that retail is (largely) unaware of it, so they can be more obvious in their actions. Since it's not well understood, they don't have to be so careful to hide everything they are doing (unlike the order flow manipulation/book manipulation).
It takes serious size to lift an offer in ES, or to clear out a bid - institutional size.
But, the guys manipulating the market know how to force retail speculators into doing this for them. HFT is manipulating the order book on both sides of the basis trade, and so they can get away with some pretty shady stuff.
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