How are synthetic spreads charted when one leg isn't even trading?

[Adam777]

@patrickrooney
@bone
@i960

I have a question that's been bugging me, ever since I started charting spreads with decent software and autospreader demos. I guess most spreadtraders understand what's going on and can explain it to me.

Lets say I'm looking at a synthetic double fly composed of exchange traded calendars. One leg is thinly traded, sometimes trading only a few times during the day, and the other legs are very liquid and trading constantly. The combined chart of the synthetic double fly looks beautiful and never misses a beat. Every day I've been modeling many similar double flys, and most of them have either a single thinly traded wide wing, or the back wing is thinly traded.

Of course when I enter I need to first wait and enter on the thinly traded leg, and then hedge with the other more liquid legs.

Ok my question ... does the "autospreader/good charting software" combining the contracts:
1. use the "last traded price" in the thinly traded contract (even though nothing has actually traded for quite a while),
2. or does the software enter a "zero" for the thin leg when combining all the legs (hence you are really only charting what the other liquid legs are doing) ?
3. or what else may be happening?

I feel like I'm just charting a mirage when the thin leg isn't trading, so I really want to understand what's going on.

 

[2rosy]

most likely chart on bid/asks. worst, best case or midprice. Last trade is meaningless

 

[Robert Morse]

synthetic double fly

I have a few questions if you don't mind.

1. Are these futures spreads or options?
2. What is an example of a synthetic double fly?
3. When would you look to do these and where do you profit most?

Sorry, never heard of this one.

Bob

 

[Adam777]

I have a few questions if you don't mind.

1. Are these futures spreads or options?
2. What is an example of a synthetic double fly?
3. When would you look to do these and where do you profit most?

Sorry, never heard of this one.

Bob

Sorry. Just a futures double butterfly. Not options. This happens when any thinly traded futures contract is spread against another liquid contract, regardless if it's a futures butterfly, condor, double butterfly etc. I'm just just trying to understand how it's being charted in TT autospreader

 

[Robert Morse]

I guess I have to learn more about futures spreads besides calendars. Do you have a good resource for me to read about them? It would help me to learn purpose of them, when they work and when they don't. Maybe some examples.

 

[Adam777]

most likely chart on bid/asks. worst, best case or midprice. Last trade is meaningless

Thankyou. Ok I think that makes a little more sense. I still need think about this a little more.

 

[Adam777]

I guess I have to learn more about futures spreads besides calendars. Do you have a good resource for me to read about them? It would help me to learn purpose of them, when they work and when they don't. Maybe some examples.

I've mainly been reading everything by bone and the other spread traders on the forum. I'm just a noob trying to work it out. The following CME link explains most of the common futures spread combinations.

http://www.cmegroup.com/confluence/plugins/servlet/mobile?contentId=78447143#content/view/78447143

Simplest butterfly spread constructed out of 2x exchange traded calendars could be: "GC june17-july17" - "GC july17-august17"

 

[Robert Morse]

Adam77,

It requires you to have an understanding and expectation of that commodities term structure where you think one delivery month is too high vs the the others? That requires a lot more homework of supply and demand-seasonality for that products then I'm willing to put in.

Thx...