It's only garbage because it went against you. Had you been pleasantly surprised by an SOQ in the 60's this thread would not exist and we wouldn't be wasting our time trying to help you understand something very basic that is readily available on the web. SOQs can be far outside of what seems logical, so you need to plan accordingly. If you don't wish to roll the dice, then you need to take some action on Thursday. More important, as others have mentioned you need to understand the terms of what you are trading. Seeking to blame everyone else in the process isn't going to get you anywhere.
You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
Futures expiration and IB
- Thread starter Circle
- Start date
It's only garbage because it went against you. Had you been pleasantly surprised by an SOQ in the 60's this thread would not exist and we wouldn't be wasting our time trying to help you understand something very basic that is readily available on the web. SOQs can be far outside of what seems logical, so you need to plan accordingly. If you don't wish to roll the dice, then you need to take some action on Thursday. More important, as others have mentioned you need to understand the terms of what you are trading. Seeking to blame everyone else in the process isn't going to get you anywhere.
Yep.
Its grow up and accept your mistake time. Get over it and move on to better trading in future.
Its grow up and accept your mistake time. Get over it and move on to better trading in future.
i had always wondered. if i were long 1 EUR contract on globex, and I am short -125,000 EUR/USD. Can I close those hedged positions just by letting the contract expire?
I take away from this thread that the settling price isint the instantaneous price when the future is delivered, which may cause significant possible loss on that hedged position?
do futures still trade after the settling price is determined? is it possible to see the settling price that they will use before the contracts expire(CME website?)? or do I have to calculate it myself? my arb sense is tingling. oh wait. delivery takes 2 days :S
I take away from this thread that the settling price isint the instantaneous price when the future is delivered, which may cause significant possible loss on that hedged position?
do futures still trade after the settling price is determined? is it possible to see the settling price that they will use before the contracts expire(CME website?)? or do I have to calculate it myself? my arb sense is tingling. oh wait. delivery takes 2 days :S
Quote from Circle:
Def,
This is just a moot point. Just because people can accurately follow some rules and calculate values in a spreadheet does not make it a good value.
Now Russell or CME could very well have set some "ultra-special" opening price rule where the settlement is based on the average of the opening price, 10 minutes before the open and/or a moving average of the prints upto 1.5 hours after the open, and so on..
As I have tried to explain, the settlement values should have some logic- the primary one being that futures should expire into the cash.
I can easily come up situations where this wonderul logic of "special open price", that you are very proud of, leads to a futures expiration price that is at a premium to further out-months... As far as I'm concerned this is garbage.
Expiration 101.
Lesson # 1
Net imbalances on Expiration are the direct result of the speculative imbalance. For example in your case there must have been a large short speculative imbalance in the contract. Here is a micro example for you:
Let's say there are 10,000 contracts still open - going into expiry.
8,000 on the long side are index arb (traders are long futures short stock) - these traders will buy an equivalent amount of stock to close out their position on expiry (Friday open)
2,000 on the long side are speculative longs - who will simply let their positions expire
5,000 on the short side are index arb (traders are short futures long stock) - these traders will sell an equivalent amount of stock to close out their position on expiry (Friday open)
5,000 on the short side are speculative shorts - who will simply let their position expire. (you were part of this position)
In this case you will have 8,000 contacts worth of stock buying on the open and 5,000 contracts selling on the open - the difference results in a large buy imbalance worth of stock - going against the net speculative position in that contact. Keep in mind that this is simply reversing all the net stock positions that were shorted as a result of index arb over the length of contract.
Ignorance + leverage = disaster
mskl.
You need to make an effort to understand what I'm talking about. We are not talking about trading and order flows.
I am interested in the expiration price of a derivative that tracks an underlying. An in-the-money option for example should, upon expiration, be exactly equal to the underlying stock/index, with zero time value. Regardless of order flow.
Besides, for every open-contract out there (be it an option or a future), there is a buyer and a seller. At any given point the no. of longs are equal to short contracts. So regardless of order flow and all other irrelevant factors that you are citing, the futures should expire the same as the underlying index.
Now, if I were part of the CME and had to devise an equitable system- I'd simply say Friday 3.15 pm index-close is the futures price. So by 3.30 all contracts (long and short) are cash-settled accordingly.
Now I would even accept if the participants chose some other random time, such as noon time or whatever. Just as long as we can all see what the published index is actually at that particular time.
In the curent system- we have a "special" open, and no way of knowing which stock opened, and what the actual index is. It can be anything. As I have said, the index opened at 842.5, but the special open is 853.
So whatever hedge you have is simply useless, because thanks to the SOQ, the derivative has a life of its own- even if it is so momentarily.
Anyway, as others have expressed, let's move on. If you are all happy with the current system, who am I come in between.
Cheers.
You need to make an effort to understand what I'm talking about. We are not talking about trading and order flows.
I am interested in the expiration price of a derivative that tracks an underlying. An in-the-money option for example should, upon expiration, be exactly equal to the underlying stock/index, with zero time value. Regardless of order flow.
Besides, for every open-contract out there (be it an option or a future), there is a buyer and a seller. At any given point the no. of longs are equal to short contracts. So regardless of order flow and all other irrelevant factors that you are citing, the futures should expire the same as the underlying index.
Now, if I were part of the CME and had to devise an equitable system- I'd simply say Friday 3.15 pm index-close is the futures price. So by 3.30 all contracts (long and short) are cash-settled accordingly.
Now I would even accept if the participants chose some other random time, such as noon time or whatever. Just as long as we can all see what the published index is actually at that particular time.
In the curent system- we have a "special" open, and no way of knowing which stock opened, and what the actual index is. It can be anything. As I have said, the index opened at 842.5, but the special open is 853.
So whatever hedge you have is simply useless, because thanks to the SOQ, the derivative has a life of its own- even if it is so momentarily.
Anyway, as others have expressed, let's move on. If you are all happy with the current system, who am I come in between.
Cheers.
I don't know why you're ripping into Def for this. He's just the messenger.Quote from Circle:
As I have tried to explain, the settlement values should have some logic- the primary one being that futures should expire into the cash.
I can easily come up situations where this wonderul logic of "special open price", that you are very proud of, leads to a futures expiration price that is at a premium to further out-months... As far as I'm concerned this is garbage.
One time I forgot to roll over QM on its final day of trading and it settled at a price that was lower than any print that day. I didn't like it, but I didn't blame IB for it, and I learned to watch expiration dates more closely. Index futures are even wackier because they settle almost 18 hours after you last trade them, plus it happens on options expiration day, one of the more volatile days of the month. There are probably fairer ways to do it, but blaming a broker's rep isn't the way to fix it.
LOLQuote from Circle:
Def,
This is just a moot point. Just because people can accurately follow some rules and calculate values in a spreadheet does not make it a good value.
Now Russell or CME could very well have set some "ultra-special" opening price rule where the settlement is based on the average of the opening price, 10 minutes before the open and/or a moving average of the prints upto 1.5 hours after the open, and so on..
As I have tried to explain, the settlement values should have some logic- the primary one being that futures should expire into the cash.
I can easily come up situations where this wonderul logic of "special open price", that you are very proud of, leads to a futures expiration price that is at a premium to further out-months... As far as I'm concerned this is garbage.
Would you like a lollipop ?
Quote from Circle:
mskl.
You need to make an effort to understand what I'm talking about. We are not talking about trading and order flows.
I am interested in the expiration price of a derivative that tracks an underlying. An in-the-money option for example should, upon expiration, be exactly equal to the underlying stock/index, with zero time value. Regardless of order flow.
Besides, for every open-contract out there (be it an option or a future), there is a buyer and a seller. At any given point the no. of longs are equal to short contracts. So regardless of order flow and all other irrelevant factors that you are citing, the futures should expire the same as the underlying index.
Now, if I were part of the CME and had to devise an equitable system- I'd simply say Friday 3.15 pm index-close is the futures price. So by 3.30 all contracts (long and short) are cash-settled accordingly.
Now I would even accept if the participants chose some other random time, such as noon time or whatever. Just as long as we can all see what the published index is actually at that particular time.
In the current system- we have a "special" open, and no way of knowing which stock opened, and what the actual index is. It can be anything. As I have said, the index opened at 842.5, but the special open is 853.
So whatever hedge you have is simply useless, because thanks to the SOQ, the derivative has a life of its own- even if it is so momentarily.
Anyway, as others have expressed, let's move on. If you are all happy with the current system, who am I come in between.
Cheers.
SOQ - is the best way to settle these contracts. Without it - and you would never get the liquidity you see in the futures markets as the arbs would not have a reliable method of getting out of their respective arb positions - they need to be able equate their stock trades to the futures settlement. If you get the opening print on all the stocks then you will get settlement in the futures - thus locking in the arb - that is SOQ.
Based on the fact that different equities will open at different times then it is quite conceivable that the settlement price for an index can be higher than the high of the day of that index or lower than the low of the day. However, one could easily say that the "true" opening for the index is the opening price of all the underlying stocks - not a picture of the index at 9:30:00 (as 99% of all NYSE/AMEX stocks have not opened at that time)
So - yes they could do it your way - settlement at a certain time of the day (based on last price) but the arbs could never get out at that "last price" - thus they would never get into these positions and the futures market would have little liquidity in it.
You have to understand that a large percentage of Open interest comes from these large institutions - who often unwind their positions on expiry (if they don't roll them) - and these net imbalances are the result of guys like you - "rolling the dice" and this speculation simply comes out in the market.
loufah,
Thanks. Again, I'm not blaming Def.
Apologize if my posts sound that way. In fact, I applaud Def for being candid and sending all of the good links.
One of the worst things about this incident was- "at the end of the day" last Friday, TWS was showing me a net liquidation value of +10k on my account (for an overall spread position including the expired contracts). Sunday, morning, I see it is -6k. !! This and other data points led me to believe that IB was screwing around by arbitrarily closing the books over the weekend.
Anyway, I now have a better idea of what's happening (thanks to Def and others in the forum), and at least it rid me of the notion that IB was ripping me off.
cheers.
Thanks. Again, I'm not blaming Def.
Apologize if my posts sound that way. In fact, I applaud Def for being candid and sending all of the good links.
One of the worst things about this incident was- "at the end of the day" last Friday, TWS was showing me a net liquidation value of +10k on my account (for an overall spread position including the expired contracts). Sunday, morning, I see it is -6k. !! This and other data points led me to believe that IB was screwing around by arbitrarily closing the books over the weekend.
Anyway, I now have a better idea of what's happening (thanks to Def and others in the forum), and at least it rid me of the notion that IB was ripping me off.
cheers.