Futures spread trading

[bone]

I don't know how well this will turn out, but it illustrates the unbelievably awesome capitalization efficiency you get with futures spread margin offsets.

Examples: 30 Yr. Bond Spec Initial: $2700; Spread Initial: $405

RBOB Gasoline Spec Initial: $11,475; Spread Initial: $3375

Hint: Go to the exchange website, contract specifications, performance bond margins tab, inter and intra-commodity rates tabs. You will typically see about 65 to 90 % SPAN margin credits for overnight positions. Advantage Futures, Crossland, and the other Chicago FCMs will typically give spread traders at least 4:1 buying power intraday if they cannot put the overnight SPAN rates into the intraday risk settings for the client.

 

[Lucias]

Let's start with something more basic, are you directionally trading the spreads (i.e momentum trading them) or trading them for mean reversion? It seems the former is more common. Are you trying to take advantage of ETF roll overs in the commodities? Is it generally the same contract hedged against different months?

I'm very good at predicting the overall market. So, I figure I could predict these too. But in the futures market, I only hold for a couple days. This is my style. 1 to 3 days.. the most is 5 days. This is due to the leverage of futures. It does well when volatility is higher but when we get sustained trending then it leaves me out. Plus, it is often harder to make money trading in/out then just riding the momentum.

I can see that spreads decrease the margin but I'm still not sure I'd be comfortable holding them over time. Like right now, I think buying calls on the ES would be a great buy. Unlimited upside and maybe a few $$ downside. I could loading up and scaling out 1/2 pretty quick and letting rest run until expiry. I wouldnt do this on the futures though, I'd be in and out.

 

[bone]

Live screen shot from my TT platform for spread trading and intermarket arbitrage between ICE Henry Hub Natural Gas Swaps and ICE PJM-West Electricity Swaps in 2008. The financial crash later in the year made this trade untenable from a liquidity standpoint - but it was very good while it lasted.

 

[operator]

Quote from bone:

Live screen shot from my TT platform for spread trading

Show me a screen shot from the past few weeks and if the numbers are even a fraction of those numbers I will sign up.

operator

 

[Blotto]

Quote from Lucias:

PS: Bone don't bother to reply. You're on permanent ignore.

Please, when are you going to learn?
You claim to wish to improve your knowledge by learning from what others post. Then you proceed to filter based on who is writing and not the content of what is written. In addition you alienate those most in a position to help. There is no need to be so rude. Others may be interested in what bone has to say. I nudged you about this more gently in the other thread. How do you expect to get anywhere in this business by insulting people, especially those who know what they are doing.

Listen and learn instead.

 

[bone]

Quote from operator:

Show me a screen shot from the past few weeks and if the numbers are even a fraction of those numbers I will sign up.

operator

No win situation for me: 1. because if I hid the account number and exchange ID identifiers off of the order tickets and fill window then I would be called a photo-shopping liar, 2. I have some very unique synthetic spread combinations that are proprietary, and 3. your experience would be much more analogous to a client - so if you are a suitable prospect my advice would be to ask them for yourself. Many of my clients take emails and phone calls from prospects. Ask them whatever you want on your own nickel.

 

[foo]

Quote from Lucias:

Let's start with something more basic, are you directionally trading the spreads (i.e momentum trading them) or trading them for mean reversion? It seems the former is more common. Are you trying to take advantage of ETF roll overs in the commodities? Is it generally the same contract hedged against different months?

I'm very good at predicting the overall market. So, I figure I could predict these too. But in the futures market, I only hold for a couple days. This is my style. 1 to 3 days.. the most is 5 days. This is due to the leverage of futures. It does well when volatility is higher but when we get sustained trending then it leaves me out. Plus, it is often harder to make money trading in/out then just riding the momentum.

I can see that spreads decrease the margin but I'm still not sure I'd be comfortable holding them over time. Like right now, I think buying calls on the ES would be a great buy. Unlimited upside and maybe a few $$ downside. I could loading up and scaling out 1/2 pretty quick and letting rest run until expiry. I wouldnt do this on the futures though, I'd be in and out.

The truth is like anything else in life...there is no short cut---you need the experience to know what contract belongs where in relation to the other contract at any given time of year.

Even then things can change and throw you a curveball even if you look at the historic norms of the spread.

I love spreads.....but even spreads are a changed game and one must watch fund money flow carefully at all times. When they pile in or out of a particular commodity ---past spread relations can matter very little....

With patience and experience there is no better way to trade.

I don't believe anything can substitute watching almost every tick...every day....cause if you don't---you wont be on a level playfield with those that do.......

Just my opinion on spreads......

 

[bone]

Generally speaking, spreads in many markets do not mean revert back to a "fair value" level like they used to. Those situations, from what I have experienced at least, are becoming harder and harder to find.

Spreads trend like crazy. This is good.

Most of your spreads in the commodities, financials, and energy have very high levels of commercial order flow.

There can be insane edge in unique spread combinations and weightings. The gift that keeps on giving. If you have a creative bone in your body, spread combinations and modelling definitely allow you to use the road less traveled. You can literally create your own markets.

Well-behaved spread combinations generate pure portable alpha returns - they should have very little delta directionality with the flat price outright marketplace. This aspect makes successful arbitrage and spread traders valuable employment recruits.

Beats the shit out of fighting with 250,000 other little turds every minute of every day scalping ES off a tic chart.

 

[operator]

Quote from bone:

No win situation for me: 1. because if I hid the account number and exchange ID identifiers off of the order tickets and fill window then I would be called a photo-shopping liar, 2. I have some very unique synthetic spread combinations that are proprietary, and 3. your experience would be much more analogous to a client - so if you are a suitable prospect my advice would be to ask them for yourself. Many of my clients take emails and phone calls from prospects. Ask them whatever you want on your own nickel.

1. Just show the P&L last colum, that is it. 2. If you are an old goat like me the odds are you do not even know have to photo-shop. 3. Maybe I will do that...

 

[oldtime]

When I started, there was no such thing as E mini. If you wanted to trade S&P you needed more margin than I had ever seen.

But you could spread the NYFE (New York Futures Exchange index) against the S&P for less than 5k.

They didn't have computers back then. As long as you were spread on the open and the close they didn't care what you did during the day.

So I would just take one side off on the open and daytrade to my hearts content and put the spread back on at the close. All for only 5K.

S&P didn't move much back then, but still, it was $500 a point.