Fully automated futures trading

[globalarbtrader]

Hi guys, sorry but I have a noob question.

Let's say I'm holding JPY futures expiring in Dec. What exactly do I do on expiry date for rolling?

1) Do I purchase a spread
2) Wait for expiry and delivery then open a new position
3) Just before expiry, roll the position by closing current month and buying next

1 is preferable, but not all markets have liquid spreads.
3 is the second best option (all other things being equal will cost you twice the spread option)
2 will usually result in more trading costs, and also gap risk (the price may move between the settlement on one day and when you get to open the new position).

GAT

 

[sle]

1 is preferable, but not all markets have liquid spreads.
3 is the second best option (all other things being equal will cost you twice the spread option)
2 will usually result in more trading costs, and also gap risk (the price may move between the settlement on one day and when you get to open the new position).

GAT

Sorry, how does 2 have higher expected trading costs that 3? You are trading one contract as opposed to trying to leg a spread, unless I am missing something.

PS. Many markets that do not have an official calendar spread market might have a liquid roll market vs other participants. That’s where talking to voice brokers helps.

PPS. Had a look at your portfolio book - very interesting stuff

 

[Napoleon@Dynamite]

I usually do #3 because I don't understand how a spread trade works. If I choose the option "roll" on my tdameritrade account (which I assume is the same as a spread trade), it shows a screen which shows me exiting the old contract and entering the new one. What does the limit amount of 1.95 represent in this example?

 

[srinir]

PPS. Had a look at your portfolio book - very interesting stuff

Where did you see that?

 

[sle]

Where did you see that?

https://books.google.com/books/about/Smart_Portfolios.html?id=Z1k1DwAAQBAJ&hl=en

I downloaded a sample and probably going to buy the book (which is unusual for me - my literacy level is very low)

 

[srinir]

Oh I misunderstood. I thought you had look at his current portfolio.

I have read his previous book which is also good, haven't pulled trigger on his new book yet.

 

[Gambit]

Oh I misunderstood. I thought you had look at his current portfolio.

I have read his previous book which is also good, haven't pulled trigger on his new book yet.

Buy it. It's worth it. Not as trading oriented as the first one but a fresh perspective on common investing theory.

 

[globalarbtrader]

Sorry, how does 2 have higher expected trading costs that 3? You are trading one contract as opposed to trying to leg a spread, unless I am missing something.

PS. Many markets that do not have an official calendar spread market might have a liquid roll market vs other participants. That’s where talking to voice brokers helps.

PPS. Had a look at your portfolio book - very interesting stuff

If I do 3 then I have to pay 2x(trading cost in future)
If I do 2 then I have to pay 1x(trading cost in future) + 1x(trading cost in spot)

In my experience the trading cost in spot is usually higher than the future, hence 3 is cheaper. Of course this wouldn't apply to a cash settled market - but the gap risk would worry me more than a small saving in costs. And of course in eg bond futures you can't usually take physical so waiting for expiry isn't an option.

GAT

 

[sle]

If it’s a cash settled future, my intuition would be to let it expire. You get guaranteed savings on the trading costs of one leg. The gap is zero expectation, unless you have a prior about it’s bias (in which case you should make a strategy out of it). In fact, I actually do this if the listed rolls are liquid but trading at an adverse level.

In case of a physical settlement with an active EFP market (assuming you can take delivery and the deliverable is the same across months), it’s still to the traders advantage to let it expire. In fact, it’s better situation than a cash settled futures since you will need to do a single EFP transaction to get back into a futures position and there is no gap risk. So the only time I see legging a roll as a better deal if it’s a physical settlement and there is no EFP market.

Of course, this is a purely theoretical discussion since I cannot, for the life of me, think of a contract that is liquid but does not have an active roll market (at least an implied one).

PS. Not trying to be adversarial or calling you out, simply want to understand your thought process (especially when we arrive at different conclusions).

If I do 3 then I have to pay 2x(trading cost in future)
If I do 2 then I have to pay 1x(trading cost in future) + 1x(trading cost in spot)

In my experience the trading cost in spot is usually higher than the future, hence 3 is cheaper. Of course this wouldn't apply to a cash settled market - but the gap risk would worry me more than a small saving in costs. And of course in eg bond futures you can't usually take physical so waiting for expiry isn't an option.

GAT

 

[isotope1]

@globalarbtrader I just wanted to know, what were the consequences of open sourcing pysystemtrade? I'm thinking about open sourcing my system, which goes all the way from quandl through to IB. My hope is that others will use it, improve it and help iron out the bugs. I've never done an open source project before.