OUTRIGHT vs. SPREAD trading
- Thread starter tbomb
- Start date
Although by no means am I the final word on this but I am not a big fan of actually spread trading unless you are taking longer term position trades such as 10 yr/bund when it was around par and you are holding it from months back based at the time on crappy euro economy vs the US improving economy with rate increases. I think scalping the spread is a poor risk to reward scenario these days with the autospreaders, compeition, and big sized locals out there pushing markets to trip autospreaders. I think you have all the risk of an outright trade but not the upside. You get a bad spot in a spread (since lately many are not mean reverting anymore) then you can lose on both sides of the spread which is worse then the outright plus the double commissions.
However I do think there is an advantage to using a spread relationship to help maybe determine which product you want to be in if we are in an uptrend or downtrend, maybe help in timing the outright if the spread is trending or channeling, and sometimes improve your fills as at times you can see obvious spots where someone big is putting on a spread. In this last case it might give you something to lean on if you have other reasons for being in the trade as you know someone big is putting the spread on.
The last few days have had some huge spread plays going on especially the 10yr bund spread. This has been one of the most popular positions over the last year for many managers/hedge funds. When these big guys get out of a spread that they have been holding for months they don't mind giving up serveral ticks at a wack just to get out. At least this is my opinion on the subject.
Hi cornholetrading, care to elaborate a little regarding this particular 10yr bund spread. Whats the spread range like during the last few days of rollover? Can we leg the spreads ourselves or is the automated spread software already dominating the scene? Just curious.
ok, profutrader..
Give the old man a chance.
The bund may be an issue, but I feel a second wind coming...
I like his writing style, and I would encourage him to continue....
However I feel..as many are feeling, that we are due for a correction.
That said, I salute my friend in is coliquoal persuit of happiness.
Shall we trade??
Give the old man a chance.
The bund may be an issue, but I feel a second wind coming...
I like his writing style, and I would encourage him to continue....
However I feel..as many are feeling, that we are due for a correction.
That said, I salute my friend in is coliquoal persuit of happiness.
Shall we trade??
FredBloggs
Guest
not necessarily capital intensive if you are trading futures exchange recognized spreads. in fact, margins are way lower than out rights.
Is spread mainly for long term(at least few days to weeks)?
Quote from profutrader:
Hi cornholetrading, care to elaborate a little regarding this particular 10yr bund spread. Whats the spread range like during the last few days of rollover? Can we leg the spreads ourselves or is the automated spread software already dominating the scene? Just curious.
Like I mentioned before I am just giving my opinion on the subject. I don't trade the spread but use it at times to help make decisions for trading directionally. I am by no means a spreading guru. I don't know the spread range during the last few days of rollover. However I know some days the 10 bund spread is moving all over the place with a large range while the outrights are sitting there in chop while traders complain that there is no follow through. You can leg any spread you want yourself or you can autospead it. Although for those spreaders who like to just click click into a spread and steal a net 1/4 of a tick I feel the opportunity and results are pretty poor. I think that autospreaders dominate that area of spread trading but there is opportunity if you are trading for bigger moves in the spread. IF you can work one side I think you would be better off but then that would usually mean you have to be right directionally on your first half of the trade. If you can do that then why spread it off. To me some days it seems someone with a lot of buying power is trading the 10 bund spread intraday, but have the buying power to hold up or stop the movement in one of the products of the spread.
Bill Gross was a huge fan of that US Ten-year note vs. German Bund spread (in terms of cash yield basis). I believe he put it on (short US ten-year futures versus short Eurex Bund) late last year when the spread was only +25 basis points (US cash yield over Bund yield), and now it is somewhere around +90 basis points. They had that spread on at least in the neighborhood of 100,000 contracts for a solid half a year or so. There is no rollover for this spread, only the individual rollover for each contract. Totally agree as of late, can tell you the US Ten-year june-sep spread during rollover moved way more than the outrights because of squeeze issues in the June contract.
I'd imagine there are some large locals that monitor the 10yr/bund spread pretty heavily, not sure if they necessarily trade it but they may play the order book games to try to catch the autospreaders. If you are looking at trading a spread with a little more edge maybe look at the NOB spread (US Ten-year note against 30-year bond). With the Bond not being as liquid as the Ten-year this one often gets out of whack very easily (as a result of the 5000 lot and above orders that tend to move the Tens a little bit).
I'd imagine there are some large locals that monitor the 10yr/bund spread pretty heavily, not sure if they necessarily trade it but they may play the order book games to try to catch the autospreaders. If you are looking at trading a spread with a little more edge maybe look at the NOB spread (US Ten-year note against 30-year bond). With the Bond not being as liquid as the Ten-year this one often gets out of whack very easily (as a result of the 5000 lot and above orders that tend to move the Tens a little bit).
Understatement of the year, when you consider options spreads.
Short one GOOG Jul 280 put, and your margin requirement is about $6,600 (If you're lucky enough to get exchange minimums. Many brokers will require over $8,000 margin on this position.)
Add long one Jul 270 put to complete the bull spread, and your margin requirement drops over 90%... to just $590.