Index Spread Traders

[bone]

The entire point of that first ES calendar spread was to illustrate that for that particular spread, it makes no sense to speculate with it. The purpose for that particular spread is to roll your position.

The other spreads trend and model well and make fantastic speculative Instruments. There is a great deal of Commercial activity in those spreads.

-with the Calendar in your first chart with the narrow range what chance a retail trader has of getting filled at the upper /lower values and make some crumbs
- with longer dated calendar on Index does the chances improve at all?

 

[ewasevvrard]

-with the Calendar in your first chart with the narrow range what chance a retail trader has of getting filled at the upper /lower values and make some crumbs
- with longer dated calendar on Index does the chances improve at all?

The chance of making money here depends on the approach you follow for effectively trading a range-bound security and this is done by confirming the range. Now, this means that you need to see whether the price on the calendar has reached at least two same highs and lows. While confirming this, also ensure that the range is achieved without a single above or below break throughout.

 

[shanellcox]

The chance of making money here depends on the approach you follow for effectively trading a range-bound security and this is done by confirming the range. Now, this means that you need to see whether the price on the calendar has reached at least two same highs and lows. While confirming this, also ensure that the range is achieved without a single above or below break throughout.

If you’re looking to improve your chances to make money as a trader on a longer dated calendar, the scope is pretty good. A long calendar spread proves to be a fine strategy in time when it’s usually anticipated that the prices shall expire at the strike price. The time I’m mentioning here is the expiry of the front- month option. So you need to keep a close tab on the time-frame here.

 

[bone]

LOL - we live for breakouts from established trading ranges.

In fact, all of inter and intra market spreads we model and trade have a habit of breaking out of an established trading range.

Model ES vs NQ weekly timeframe and you'll see what I mean

The chance of making money here depends on the approach you follow for effectively trading a range-bound security and this is done by confirming the range. Now, this means that you need to see whether the price on the calendar has reached at least two same highs and lows. While confirming this, also ensure that the range is achieved without a single above or below break throughout.

 

[ewasevvrard]

If you’re looking to improve your chances to make money as a trader on a longer dated calendar, the scope is pretty good. A long calendar spread proves to be a fine strategy in time when it’s usually anticipated that the prices shall expire at the strike price. The time I’m mentioning here is the expiry of the front- month option. So you need to keep a close tab on the time-frame here.

I honestly find applying different strategies in the currencies market much simpler, and only rarely dabble in stocks. In fact when I started forex trading a year back with xm and then fxview, I was rather surprised how precise technical indicators - both leading and lagging ones (at least for me) worked. To diversify my options I still keep some stock positions open, but mostly treating them as investments now. Sort of as part of my retirement plan.

 

[treeman]

I use Index spreads to manage the risk I'm exposing myself to. Currently, I'm long RTY, short ES, but all things being equal, would prefer to just be long RTY. Pullbacks generally are difficult to time exactly, and I'm not particularly interested in churning contracts up and down day to day. So when I expect a pullback, I like to index spread and short the relative laggard. Once I deem the pullback is over, I release the short. If I'm wrong on timing, then my position becomes a relative position - instead of being out of the market. And if I'm wrong on the relative aspect, it's not a shit show. Relative positions are slow changes, and not abrupt at all, so picking the right direction isn't rocket science.

 

[bone]

What has been missing here in this conversation is the way the "pros" tend to use equity indices with spread trading. Just about every relative value fund manager is going to employ some variation on this theme.

Very seldom are they long one index name and short another index name. Primarily the pros are doing baskets of stocks versus the index.

One common approach is to be long selected "stars" in the index and to be short the index as a hedge. One example of this might be long TSLA, long GOOG, versus a short position in NASDAQ. Pros will typically use the ETF (QQQ) or the futures (NQ) for the index leg. Generally speaking - unless you have an omnibus account, you should use QQQ.

Conversely, you could short selected underperforming "dogs" versus being long the appropriate index.

The delta exposure will be weighted. In other words, the long exposure to TSLA and GOOG will be volatility and currency adjusted to the short exposure in QQQ.

I'm speaking in broad strokes here, but hopefully it adds some color.

 

[bestlooser]

You really want to swing trade spreads. And with the generous margin credits provided by all the futures exchanges for spreads you want to take advantage of that. They're cheap to hold overnight. The only problem I've seen is that most discount futures brokers don't have their risk management systems set up to margin you correctly intraday. But the FCM's who clear prop firms and hedge funds (Advantage, RCG, RJO, Dorman) will know exactly what to do because spread trading is core to their business clientele.

The really highly capitalized prop firms like DRW and Jump and the Quant Hedge Funds are the ones with the infrastructure and ECN's to arbitrage them. Intraday arbitrage is expensive and crazy competitive.

Nice post! Regarding brokers/platforms, do you know who supports stop order on multi legs spread? IB supports stops for 2 legs (both guaranteed, i.e. exchange native, and non guaranteed i.e. IB routed) but not for more than 2 legs, and recently it does not supporte even two legs for negative capable legs, after oil went negative and they lost a lot of money due to untriggered stop. The same limitation is valid for interest rates spread, since they can also go negative. For example cl.rb can only be traded with limit orders.
I think TT and CQG have spreaders, but they are expensive and based on my research they dont support stops, only limit and market.

I was thinking of CME direct, but I dont know if they support stops. I think RCG, CTS and Rithmic allow to trade spreads as well, but I dont think they support stops.
Thanks again for the margin credits observations, but I think also small brokers as AMP support spread credits, if using TT auto-spreader. They delegate the margin calculation to the ISV, so I wonder if rythmic does as well.

 

[bone]

If you clear a really good FCM like Advantage or RJ Obrien or Dorman or RCG there's a chance you could lease TT or CQG-IC on a per-trade basis with a cap.

The AutoSpreaders have all kinds of flexibility in terms of what order management - for example, what oders you show to the market and your specified pay-up tics (if any).

Nice post! Regarding brokers/platforms, do you know who supports stop order on multi legs spread? IB supports stops for 2 legs (both guaranteed, i.e. exchange native, and non guaranteed i.e. IB routed) but not for more than 2 legs, and recently it does not supporte even two legs for negative capable legs, after oil went negative and they lost a lot of money due to untriggered stop. The same limitation is valid for interest rates spread, since they can also go negative. For example cl.rb can only be traded with limit orders.
I think TT and CQG have spreaders, but they are expensive and based on my research they dont support stops, only limit and market.

I was thinking of CME direct, but I dont know if they support stops. I think RCG, CTS and Rithmic allow to trade spreads as well, but I dont think they support stops.
Thanks again for the margin credits observations, but I think also small brokers as AMP support spread credits, if using TT auto-spreader. They delegate the margin calculation to the ISV, so I wonder if rythmic does as well.

 

[bestlooser]

If you clear a really good FCM like Advantage or RJ Obrien or Dorman or RCG there's a chance you could lease TT or CQG-IC on a per-trade basis with a cap.

The AutoSpreaders have all kinds of flexibility in terms of what order management - for example, what oders you show to the market and your specified pay-up tics (if any).

As far as I can see in the manuals or demos the AutoSpreaders do not support stop orders, only lmt and mkt. Is this correct?
RCG ONYX has a built in auto-spreader, but is it as reliable as TT and CAG? And what about rithmic?
I can experiment with all the platforms but if someone has experience it would save time.