Futures spread trading

L

Lucias

This topic will be on futures spread trading. I don't know much about it. But, I'm interested to learn more.

Some of the resources on futures spread I've found are:

Joe Ross
Daniels Trading
What I Learned Losing A Million Dollars (a spread trader)

Futures spreaders go long/short different months of the same or related contracts. It reduces margin requirement, volatility, etc. Those are the claims. Spread traders tend to favor the commodities (i.e grains, oil, etc) over the financials. Although, I did read 1 article over at Daniels about spreading the ES to reduce commission. Spread traders often try to take advantage of seasonal effects, technical analysis, or other inefficiency.

Some automated traders arbitrage these spreads. But, these arb opportunities are only said to exist for microseconsd. One arb software is Orc and they have a few articles about it.

Anyone who trades futures spreads here want to comment? I'll be sharing what I learn as I go through this process. I don't spread trade at this time.

We may want to look at portfolio, analysis theory, correlation, cointegration, and other factors. I may develop and share some spread ideas here. I never share my current edges but this is something I don't know: so I might be willing to develop an edge and give it away. If we have a decent interest in this topic, we'll see.

I am interested also in reverse spread trading: that is traditional portofolio analysis theory. If we can find markets with high sharpe ratios and low correlation, it might be possible to momentum trade them with less risk then an outright position.

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

I do spreads, all sorts of spreads... However, all rates, none of that agriculture funny stuff.
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Yeah, Martin, best not get involved - you are apparently not 'preferred'. Not one of the chosen. (How is it that the currencies, equities, and interest rates are heavily spread-traded and arbitraged but that didn't make his 'list' like "commodities" ?).
 
Quote from bone:

Yeah, Martin, best not get involved - you are apparently not 'preferred'. Not one of the chosen. (How is it that the currencies, equities, and interest rates are heavily spread-traded and arbitraged but that didn't make his 'list' like "commodities" ?).
More...

Wheat and corn spreads have been a big part of this person's life for 35 years and it is the spreaders who have the career longevity, not the scalpers. The ag spreads are beautiful.
 
Okay when I've looked at spreads, I notice they maybe are less volatile but then they run really hard often to the downside. Do you trade with a broker that allows stops or not stops?

One aspect I like about vertical spreads over futures is the limited risk/reward nature.
 
What methods do you guys like to use for trading spreads?

I try to wait for a major value opportunity, relative to the historic spread range & ratios, check there isn't some kind of secular change to cause old spread relationships to break down. Then wait for people to puke out their positions, and put on a half position into the capitulation. I then wait for positive momentum back in the direction of convergence, then double my size and place a trailing stop on the 'add'. Then hold until fair value, and exit half. Then wait until the convergence momentum ends, and exit the rest.

I find that there are normally 1 or 2 slam dunk opportunities per year across the futures markets. The win ratio is normally high, although sometimes you have to take a fair bit of heat.

It could be a good idea to compile a list of spread value relationships, and what represents "cheap", "very cheap", "expensive", "very expensive", fair value etc, with a few fundamental drivers.
 
some miscellaneous Bloomberg screenshots I had sitting in my picture files:

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This is one version of my proprietary scanner being used for equity pairs - my custom studies runs in nine timeframes simultaneously and entries are taken as a result of a ranking hierarchy. Note that the scanner has 580 different equity pairs loaded.

The futures spreads scanner looks similar, but the mechanics and study metrics are considerably different.

I provide the scanner gratis to my clients, and it is custom encoded and security encrypted. A security key is required on a subscription basis.

27xmm44.png
 
Quote from Ghost of Cutten:

What methods do you guys like to use for trading spreads?

I try to wait for a major value opportunity, relative to the historic spread range & ratios, check there isn't some kind of secular change to cause old spread relationships to break down. Then wait for people to puke out their positions, and put on a half position into the capitulation. I then wait for positive momentum back in the direction of convergence, then double my size and place a trailing stop on the 'add'. Then hold until fair value, and exit half. Then wait until the convergence momentum ends, and exit the rest.

I find that there are normally 1 or 2 slam dunk opportunities per year across the futures markets. The win ratio is normally high, although sometimes you have to take a fair bit of heat.

It could be a good idea to compile a list of spread value relationships, and what represents "cheap", "very cheap", "expensive", "very expensive", fair value etc, with a few fundamental drivers.
More...


Shhhhhhhh..........
 
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