ETF Arbitrage

E

etfarb

Sup ya'll

New to the forum. I'm not a company or a vendor just a private trader. Recently read Ernie Chan's quantitative trading book and think its amazing. Given the current condition of the markets and the lack of liquidity it doesn't take a genius to see that the majority of market action comes from the ETFs rebalancing.

I was wondering if anyone here trades the components of any ETFs. I was thinking about setting up a spread sheet with a live data feed and trading daily in accordance to the ETFS NAV and when the spread gets out of whack. I was wondering if anyone here does this and would like to point me in the right direction to intraday NAV calculations and calculating the spreads .
 
Big brokers, HFT firms and equity market makers all do this. It is very competitive. requires an expensive Low latency , High frequency infrastructure and a very low cost basis. Don't bother.
 
What about alternative forms of index arbitrage...

Like making a basket of stocks that mimic the S&P 500 and trade it when the deviations get out of line?
 
1245 is referring to intra-day market making. I doubt you meant to do this, meaning do arbitrage on all 500 stocks of the SP, because that's not feasable for many other reasons for a retail trader, not just the HFTs.

If your holding periods are 15+ days, then consider ETF vs ETF arbitrage, that can work. For example global equities, municipals, fixed income, debt, and not just ETF but managed funds also. What'll probably kill you is that shorting non SP500 stocks costs a lot in borrowing fees though, so you'd have to work that out. Arbitrage can work, but you'd have to be more specific, and it will probably take a lot more work than you think to figure it all out.
 
Quote from braincell:

1245 is referring to intra-day market making. I doubt you meant to do this, meaning do arbitrage on all 500 stocks of the SP, because that's not feasable for many other reasons for a retail trader, not just the HFTs.

If your holding periods are 15+ days, then consider ETF vs ETF arbitrage, that can work. For example global equities, municipals, fixed income, debt, and not just ETF but managed funds also. What'll probably kill you is that shorting non SP500 stocks costs a lot in borrowing fees though, so you'd have to work that out. Arbitrage can work, but you'd have to be more specific, and it will probably take a lot more work than you think to figure it all out.
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Braincell,

What I was thinking about doing was essentially taking a couple stocks from each sector, figuring out the correlations between the sectors and trade when they get out of wack according to the overall index (i.e. the SP500).

Do you think something like this is possible for someone who trades intraday?
 
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