ETF pair a silly question

[traderjo]

Perhaps a silly question
but can one trade the o/p hand Etfs as a pair?
UPRO/SPXU
SSO/SDS

 

[quant1]

Yes you definitely can. It is commonly called ETF arbitrage and very competitive and requires high frequency trading infrastructure.

 

[traderjo]

How would you place an order of two legs? which leg to be Long and which to be short? and when ?

at cross over?

 

[quant1]

Since these pairs have an inverse leverage relationship you would buy/buy or sell/sell, not buy/sell etc. The goal is to have zero exposure to the ETF index (in this case the SP500). How to execute this trade is sort of a complicated question, but the short answer is that it requires HFT capabilities.

 

[Sig]

Perhaps a silly question
but can one trade the o/p hand Etfs as a pair?
UPRO/SPXU
SSO/SDS

Keep in mind these all return whatever multiple of the daily return of the underlying index. So set up a spreadsheet to see what this means with some dummy index returns. Basically after 1 day the two positions are going to be unbalanced, so especially with a 3x you're going to have to rebalance your position daily.

 

[bone]

Personally I think ETFs are excellent Spread Trade vehicles.

IMO the best use of an ETF is to short a dog or buy a star Company versus the appropriate sector ETF. Both positions should be weighted by valuation-adjusted volatility.

 

[quant1]

Personally I think ETFs are excellent Spread Trade vehicles.

IMO the best use of an ETF is to short a dog or buy a star Company versus the appropriate sector ETF. Both positions should be weighted by valuation-adjusted volatility.

They definitely do allow for many possibilities when moving to a stat arb type trade as you describe. However, the trade described in the OP is not really feasible for a retail investor.

 

[bone]

They definitely do allow for many possibilities when moving to a stat arb type trade as you describe. However, the trade described in the OP is not really feasible for a retail investor.

I personally would NOT daytrade an ETF pair / I am referring to a swing trade over a period of days, weeks, even months if its performing.

 

[Sig]

Personally I think ETFs are excellent Spread Trade vehicles.

IMO the best use of an ETF is to short a dog or buy a star Company versus the appropriate sector ETF. Both positions should be weighted by valuation-adjusted volatility.

Pretty much all of my company bets are done this way. I love the rise of sector ETFs!

 

[REDP1800]

Perhaps a silly question
but can one trade the o/p hand Etfs as a pair?
UPRO/SPXU
SSO/SDS

its not silly at all. better to trade this in a swing format imho once u understand how it moves. you equalize the spread by buying different share amounts but the same dollar amount of each etf or stock.