NQ/ES Pair Trading

Quote from Sashe:

in stock trading it always depends on the pair.
for instance when you have a pair like AMAT/NVLS you need to trade it with 2AMAT:1NVLS ratio for it to be in "dollar" par.
There's also the "share" neutral strategy when for example you long 1K NVLS and short 1K AMAT, but I dont see how it can be succesful unless the stock with bigger price and hence bigger volatility read (%cng) moves in your direction.
That's why in stock trading its a good idea to even up the dollars involved in the trade, not the shares. But for some reason it doesnt work with NQ/ES


:confused:
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Hi Sashe

How have you been doing with the es -nq pair

I have been watching the two on the 5 min scale and find them interesting. I may take my signals and actually trade them this week on a 2 NQ to 1 es ratio.

If I were trading this pair I would be short nq 1375 and long es 1028.75 looking for a convergence...

Well good luck ..


Nick
 
I don't trade the NQ/ES spread. But on the numbers it would seem that it would be 2.5NQ-1ES. The problem with this however is that the NQ is more volatile, and therefore the $ values are not going to work right for you. If I were you I'd look at trading closer to 1:1. I think it would track better this way because the smaller dollar value of the NQ is offset by the larger volatility. If memory serves the spread margins are set up on a 1:1 ratio. Remember too, the NQ is what...30-40% higher priced than the ES?

OldTrader
 
At currrent valuations, 4 NQ:3 ES is the _approximately_ correct value for delta neutral volatility. Notice that corresponds to 3200 QQQ and 1500 SPY, which is about 2:1.

If you want delta long, any version with ES:NQ ratio of 1:1 is delta long if you are long 1 ES and short 1 NQ, and delta short if you are short 1 ES and long 1 NQ.

This is an extremely volatile pair and, IMHO, should only be done by well capitilzied traders that understand the risks.

nitro
 
Great info guy's...

The reason I will start with 2 nq and 1 es as opposed to 2.5 nq is the fact that the NQ is more volatile... Also really want to start with the min amount of contracts for now.


Nitro, How did you figure out the 3 to 4 ratio ...This was going to be my next venture:D Is this ratio constant or does it change as the volatility in the NQ towards the Es changes...

Thanks

Nick
 
I am no longer doing that pair live since I had encountered that I would need to come up with a better ratio. 4NQ:3ES seems to be neutral, nitro must be very close.
Btw, nitro how would you chart that spread?
I do chart spreads in Esig and Qcharts by simply dividing Nq /ES
 
I just actually entered a position before dinner .

short 2 nq 1374 and
long 1 es 1027

Watching for convergence tomorrow...

I realize I'm not delta neutral in volatility but It has worked for me while papertrading it. Also, I want to enter with the minimum for now. I consider this a test phase as well....

Good luck

Nick
 
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