hows it happening
- Thread starter Tradesman
- Start date
I've noticed that the bid on QQQ options and MSFT options has been dropping prior to the same move in the underlying. This is nothing new but seems to be happening more frequently. Funny how the ask side doesn't do the same.
I suspect these things are all related. Not saying there is anything underhanded going on but would be fun to think so and sure wouldn't be the first time.
I suspect these things are all related. Not saying there is anything underhanded going on but would be fun to think so and sure wouldn't be the first time.
Originally posted by Tradesman
How would Island consistently know which direction to move before the futures pit knows. Don't the SPY take their direction from the futures? One might speculate that persons trading the SPY's on Island have to know the order flow that's getting sent before it gets sent to the pit. I don't know I am guessing. or if not the answer might be the futures are taking direction from the SPY's (which is a combined cash).
Market movement is not about knowing anything. SPY might legally be "combined cash", but that is totally irrelevant to daytraders. A player who wants to get short the S&P 500 (not because he "knows" anything, but maybe because he is trying to hedge or speculate because his software tells him to) basically has the following choices:
1. Sell a few hundred shares of GE, a few hundred MSFT, etc. etc.: 500 orders, some of them NYSE, if they actually need to short, there are the uptick rules.
2. Sell S&P contracts in the pit
3. Sell eminis on globex
4. Sell SPY on AMEX or NYSE
5. Sell SPY on ISLD
6. take a position in index and/or securities options
7., 8. etc. etc., but I don't want to think of any more ways.
Out of 1. ... 6. the fastest way for me would be to sell SPY on ISLD. Globex would offer more liquidity, but my connection to it is in the order of a second slower. Might be a connection issue, might be an exchange issue.
An institution knows of all these possibilities and will choose one or more of them according to criteria like relative fair value, execution costs, connection/access etc.
Now give me one reason why SPY is more like "cash" and ES is more like "futures" from the standpoint of a daytrading institution.
There is just no reason why one should lead the other, except execution speed.
The observation that "futures lead cash" is only true because of the simple fact that going short "cash" means short selling 500 different stocks through specialists who pick their butts and your pockets before getting around to executing and reporting your trades, whereas shorting a few hundred eminis takes just a second or two from order entry to everyone seeing the completed transaction on their datafeed.
Shorting SPY on ISLD is even faster than shorting eminis on globex, or at least just as fast.
So please give me a reason why ES should lead SPY on ISLD.
I don't trade futures yet just stocks and options. I have been wondering if the overall combined intelligence of all futures traders is falling because of the easy access to the futures market by beginning traders. Is this lowering the value of watching the futures as a direction indicator for the cash market. Just a thought?? Nas
Note: I realize that there must be a huge difference in size between the daily volume of the big boys and the kids.
Note: I realize that there must be a huge difference in size between the daily volume of the big boys and the kids.
Lobster, the logic behind looking to futures for leadership goes back to the mid 1980's when the S&P futures were regularly trading more notional dollar volume than the NYSE. Despite the numerous derivative products now available:SP, Es,OEX NQ,ND, and DJIA I don't think futures have the same impact anymore. Especially with the huge NASD volume of recent years combined with New York. So it may be outdated to think Chicago leads. IMO though, depending on conditions, there are so many variables, leadership changes from market to market, stock to stock, through every conceivable time frame. If the pits stuck, futures lead for that moment, if an institution is liquidating a particular stock, that equity or entire sector leads. Maybe what we are seeing lately is reflective of wholesale mutual redemption. It's not just enough for these funds to sell futures against their portfolios anymore, maybe there is actual real time puking of the underlying.
Frontrunning
If a broker has a huge order for the cash market that will move the market.
he can't trade in front of that order to take advantage of it.
...in stocks
but he can get into futures as they are a different vehicle. They were constructed as a hedge.
so futures lead the cash due to frontrunning during certain times.
Robert
I spent this afternoon watching the WMT GE & SPY along with the sp500 and listened to squawk. The Island bid fell out first always, followed by the futures. Wmt & GE didn't seem to be in sync with either one which makes sense because they are listed.
I am leaning toward the opinion that the futures just don't hold the lead as often as they used to. The cash was certainly leading the futures at different times this afternoon.
I am leaning toward the opinion that the futures just don't hold the lead as often as they used to. The cash was certainly leading the futures at different times this afternoon.