What I am asking, because I can see this only in terms of a standard futures instrument, is if your entry moves 1 tick, what is the change in value, on one contract?
Index Spread Traders
- Thread starter Real Money
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What I am asking, because I can see this only in terms of a standard futures instrument, is if your entry moves 1 tick, what is the change in value, on one contract?
You’re right - you don’t get margin credits for ETFs. But quite honestly I have seen clients make very impressive gains spreading them. The idea is to buy the STAR in the corresponding ETF or conversely short the DOG in the corresponding ETF as a spread.
It’s a wonderful swing trade and if you can model enough sectors there are plenty of opportunities. What is fascinating is how well these spread differentials hold up under broad market volatility.
Keep in mind that most Hedge Fund Managers classify their funds as ‘Relative Value’ - which is exactly what index and sector spread trades are.
More importantly - you are generating alpha returns which is a most desirous trait in the money management universe
Yes, IB has had a basket spread trading tool for quite some time. For a reason.
Just to drop a hint - if you clear an Investment Bank; they feature and promote OMNIBUS accounts where their own risk managers assign internal margin credits for single name stocks vs ETFs vs futures vs Swaps vs physical vs etc etc.
It’s a relative value world
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I very much agree. In fact one of my major goals is to have enough funds to be able to trade the ETF pairs and sector spreads of the type mentioned. So much opportunity and possible trading ideas to consider. Very versatile trading style.
I was shocked to see this come true when Trump jawboned the markets. HUGE swings across every index, and yet the spreads just kept on trending and trading (albeit with some increased volatility).
Seeing that in action is making me very seriously pursuing alternatives to outright index positions (especially of the highly levered variety).
You bear witness to the very definition of portable ALPHA returns. Which is the only real reason that institutional investors consider Hedge Funds.
You’ve seen the light !
Or blinded by it. Either way, I envy you spread traders. Seems mostly immune to the noisy BS of the general market conditions.
It’s a smaller trading range with less noise - but the reduced capitalization requirements allows you to LEVER THE PISS OUT OF IT
BTW - the exchange supported spreads have WAY more size on the bid/ask and DOM as compared to flat price. On CL best bid/offer may be 10x15 - but the CL October/November calendar spread will be 300x250 best bid/offer.
Same is true for Bonds, Coffee, Corn, Natural Gas...
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The ticker on your chart, "/NQ-15*/YM" means 1 NQ and 15 YM? or what is the reasoning behind that
For inter market spreads, a change of one tic is the value of one tic for the leg that moved. So - if it’s a Russell vs Dow Jones and the Russell leg moves one tic it’s the value of one tic in the Russell.
You’ll want to adjust the value of each leg (for currency adjusted volatility weight) so that you’re profiting from the convergence or divergence between the legs and NOT broader market delta directionality.