I was wondering about setting up calendar spreads on the HSI (hang seng index, from hong kong futures exchange), it has several active months at the same time. Like right now, we have february (january is done), march, and june, all have volume and are being traded. The february and march spread is about 80 points, the february june spread is about 160 or so (both obviously fluctuate +/- like 30-40 points during the trading day). At the end of february, won't the march and february contracts have almost no spread between each other? If so, couldn't I set up spreads at the beginning of months and exit them right before the contracts roll over, taking guaranteed profits? What am I missing?
HSI Calendar Spreads
- Thread starter ig0r
- Start date
I don't spread HSI as you suggest but I do trade HSI and spread a number of other products. At first glance it appears you are overlooking the cash index. Both contracts should converge to the cash index overtime. At the end of Feb. the Feb. contract will obviously settle at cash, but the March spread could go anywhere though there should be some tendency to converge as well. Definitely NOT 'guaranteed profits.'
A very relevant question is whether you will be getting spread margins through your broker. Can have a huge impact on prospective rate-of-return - one of the most attractive features of spread trading.
As you get further out, the contract is lagging more and more behind the front month, this is what I want to use to my advantage. At the end of the front month's time (when it settles at cash) won't the next contract catch up and be very close (if not at) the cash indexes value? This is assuming that the front month follows the cash index closely (as it should as far as I understand)
cvds16: could you please give some things that I should look into? just saying that i'm missing a lot doesn't help very much, lol
Well, I will answer your query this way:
What you are suggesting is that there is this 'free lunch' just staring all of us in the face day in and day out. In my experience pursuing free lunches has only ended up being a learning experience rather than a fruitful - in $$ terms - use of time.
My gut tells me that at best you are going to garner an interest rate, or a cost-of-carry at best, and with a change interest rates, volatility, suboptimal margining or poor execution you can still get screwed.
That's all I have on the subject. If you are really interested you might put the spread on, 1 contract per side, and post progress/results in a journal. Might make for some interesting reading ...
Right, I realized this too, that's why I posted to the boards
There is no cost-of-carry as far as I know, p/l is in HKD (hong kong dollars) and is converted at the close of the position into USD by IB. Probably every night my p/l is adjusted for interest rates but that's about all I can think of, that can either be a plus or a minus, correct?bluehorsshoe answered allready alot about the question: financial futures spreads are basically a play on intrest rates (yes its more difficult than that, but basically that's what's its all about), spread trading only makes sense in commodity trading, unles your a floor trader. there is not much to gain, because under normal circumstances the spread will remain the same under the duration of the contracts. The only thing that might change that is a big fluctuation of the contract itself, but you might much better play an outhright directional play if you want to take advantage of that. if you want more background check out how financial futures are priced theoritecally. It"s 3 am here and i've been in the pub for over 6 hours, so don't expect any further explanation.
Quote from ig0r:
Right, I realized this too, that's why I posted to the boards
No, not correct. Way out in left field in fact. Scary ....
I think you could make a lot more than 50 points a month, trading the HSI. It's a pretty average return - 600 or so points a year on an index in the 13000s.
Runningbear
Runningbear