Index/Equities Correlation Q

P

pattersb

Guest
Appreciate any input for this relative newbie to day/swing trading.
(me)

One question, One request for opinion:


1. How is it that equities are so highly correlated with the Indices, SPX, DJX, QQQQ?

Do program traders determine their bid/ask by the index movements? It can't simply be overall market sentiment ... Can it?

2. I'm trying to guage the direction of the indices, and trade markets that are highly correlated but with a higher ATR than those indices, and more room to move on the down/upside.

I'm trading directional options, because I soooo enjoy tripling my principle. (and being a novice, I'm not quite ready to move onto spreads) ... SPY/QQQQ/DJX, just doesn't give me enough bang for my buck.

I've just arrived at this strategy, I use a variety of signals, to determine high probability directional movements ... of course, I'm still tweaking this ...
 
I'll throw in my two cents.

The equities ARE the indices. DJX is basically thirty of the largest and industry/sector leading companies. Many sectors will move in unison, so if the sector leader has improving prospects on a given day, the thoery is that the smaller fish benefit as well. You may have 30 stocks in a sector and 25 may be up because one of the bigger players received good news.

I think the same applies to SPX on a more granular scale. When working macro correlation angles, it is probably useful to just play entire sectors against each other.
 
Quote from pattersb:



SPY/QQQQ/DJX, just doesn't give me enough bang for my buck.
More...

you will have the same problem (price change vs relative IV/premium) with stocks .
 
Quote from ktm:

I'll throw in my two cents.

The equities ARE the indices. DJX is basically thirty of the largest and industry/sector leading companies. Many sectors will move in unison, so if the sector leader has improving prospects on a given day, the thoery is that the smaller fish benefit as well. You may have 30 stocks in a sector and 25 may be up because one of the bigger players received good news.

I think the same applies to SPX on a more granular scale. When working macro correlation angles, it is probably useful to just play entire sectors against each other.
More...

Of course, Im aware of this .

How can the nearly identical movement of the S&P and Dow be explained? They are not components of one another.


I do not know what an OEX option is, again I'm very green. Rather than bate me, perhaps you demonstrate your expertise and answer the question?
 

Attachments

oex is s&p 100 options ,they will give you more bang that you are looking for.atm oebsn,todays range6.50-7.50,open6.90,these are 570 july puts ,10 contacts x range = $1000.00 hope this helps.:)
 
Quote from itcob58:

oex is s&p 100 options ,they will give you more bang that you are looking for.atm oebsn,todays range6.50-7.50,open6.90,these are 570 july puts ,10 contacts x range = $1000.00 hope this helps.:)
More...

Yeah, Im heading that direction. I actually have developed a pretty good feel for the SP. The SP moves more smoothly than equities, but I still like the idea of finding strongly correlated stocks with wider ranges. Tripling a $1 option contract on $5 move is what I'd like to do everyday for the next 5 years, and than buy an island somewhere.

Do you have any idea how the SP and DOW move in near unison, as clearly demonstrated by the above chart? I'm very interested in finding out, something besides "overall market sentiment" must be at work here.
 
Quote from pattersb:


Do you have any idea how the SP and DOW move in near unison, as clearly demonstrated by the above chart? I'm very interested in finding out, something besides "overall market sentiment" must be at work here.
More...

best guess is that they are both part of the american stock market which include american companies dependent on the american economy.
 
the dow 30 stocks are the largest stocks held in the s&p 500, the s&p 100 are 100 largest in 500, thus all being part of each other. find the one that fits your style and have fun.:)
 
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