How to structure this trade

B

bigbiscuit

it's just a basic maths question I guess. How do I work out how many of each of the five components to sell (relative to their market cap) so as to remain neutral against the index?

Long
1 FTSE future.

Short
AAL MkCap: 19.54B Last: 1484.50
AV MkCap: 8.18B Last: 307.75
BARC MkCap: 23.39B Last: 279.00
TATE MkCap: 1.26B Last: 275.75
IMT MkCap: 15.47B Last: 1,522.00


thanks
 
couple of questions.

1. You are in the UK trading on the FTSE right? So the prices there are respresented in Pence?

2. Why are you long the index and short underlying shares (are they compnents of the index?)

3. Why do you want to sell based on market cap?

My initial imprssion is wondering if you are complicating the issue a bit.

It looks like you are trying to hedge as much as possible to avoid wild market fluctuations..why wouldnt you just take smaller long positions and save the comissions?
 
i am kind of a newbie poster but had traded correlated pairs for a year (until the market started chewing up and vomiting out 100+ year companies, thus any previous correlation goes out the window).
anyway, as no one else has posted, to be as market neutral as possible, i was always equally capitalized, like if $50k long then would be $50k short of same industry and preferably, very similar biz practices. if it was against an index, like ES futures, then it was important to have the moves be equal, like a 1% move of the ES would be the same amount of money that the opposing stocks would be IF they also moved 1%.
example, if CVX at $65 moves 1%, it goes up 65 cents whilst ES at 900 moves 9 points, which with $50 per point, i would have to have 692 shares of CVX for every contract of ES to have an equal move of $450. you may also want to consider the ATR of each stock to get a better feel for how much it will move as a % of its price, like JPM has top to bottom moves as much as some $90 stocks.
sorry, but i never considered the market cap. for such but i reckon there is infinite amounts of research that can be done.
hope this helps.
 
Quote from bigbiscuit:

it's just a basic maths question I guess. How do I work out how many of each of the five components to sell (relative to their market cap) so as to remain neutral against the index?

Long
1 FTSE future.

Short
AAL MkCap: 19.54B Last: 1484.50
AV MkCap: 8.18B Last: 307.75
BARC MkCap: 23.39B Last: 279.00
TATE MkCap: 1.26B Last: 275.75
IMT MkCap: 15.47B Last: 1,522.00


thanks
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you have to get the index weightings for the FTSE100 index.

just google it.
 
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