Pair trading futures

V

vincentvega

I'm working on a pair trading strategy in futures. Bonds, indexes and metals appear to be the best.

The problem I have is detecting "drift". I can do it by staying away from markets with bigger than normal spreads-but I was hoping to have an open discussion on some basic pair trading risk management principles.

Overall I find it to be consistent but not as profitable as other types of trading.
 
Quote from vincentvega:

I'm working on a pair trading strategy in futures. Bonds, indexes and metals appear to be the best.

The problem I have is detecting "drift". I can do it by staying away from markets with bigger than normal spreads-but I was hoping to have an open discussion on some basic pair trading risk management principles.

Overall I find it to be consistent but not as profitable as other types of trading.
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you could try ES vs YM. You need to do the formula if you want to get neutral due the difference in contract value. It use to be about 7 YM to 6 ES. The CME gives you at least an 80% margin discount, so it costs very little to put the whole thing on. The spread on ES is as good as it gets, and YM is pretty tight during RTH.
 
Quote from oldtime:

you could try ES vs YM. You need to do the formula if you want to get neutral due the difference in contract value. It use to be about 7 YM to 6 ES. The CME gives you at least an 80% margin discount, so it costs very little to put the whole thing on. The spread on ES is as good as it gets, and YM is pretty tight during RTH.
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ES and YM are a perfect 1 to 1.


I'm really looking for ideas on exit strategy and drift protection. Sorry for the dumb questions! :o
 
Quote from vincentvega:

ES and YM are a perfect 1 to 1.


I'm really looking for ideas on exit strategy and drift protection. Sorry for the dumb questions! :o
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well, actually at 1:1 you really have a micro ES. So, if you're long one ES and short one YM, you are still net long ES due to the difference in contract values.

I like it though as an alternative to a long ES and a long put, but it acts about the same.

Pairs are usually a bet on volatility.

If you are not adverse to averaging down and scaling up, and legging in, the spread can be a very cheap instrument for trading.

No dumb questions, but also no end to dumb answers (and as soon as I mention averaging down, here they come)
 
Quote from oldtime:

well, actually at 1:1 you really have a micro ES. So, if you're long one ES and short one YM, you are still net long ES due to the difference in contract values.

I like it though as an alternative to a long ES and a long put, but it acts about the same.

Pairs are usually a bet on volatility.

If you are not adverse to averaging down and scaling up, and legging in, the spread can be a very cheap instrument for trading.

No dumb questions, but also no end to dumb answers (and as soon as I mention averaging down, here they come)
More...

With respect-you stated you were unemployed and complaining about $100 or so in taxes.

ES and YM are 1:1. You are forgetting how futures work-or you don't know. They are ticks, and each tick is equal value. This isn't true with stocks.


________________

I'm looking at ways to use volume to gauge a drift. Some days the dow will drift very hard and lose money in a pairs trade. Anyone who has any links or ideas, I would love to hear or discuss them! :)
 
Quote from vincentvega:

With respect-you stated you were unemployed and complaining about $100 or so in taxes.

ES and YM are 1:1. You are forgetting how futures work-or you don't know. They are ticks, and each tick is equal value. This isn't true with stocks.


________________

I'm looking at ways to use volume to gauge a drift. Some days the dow will drift very hard and lose money in a pairs trade. Anyone who has any links or ideas, I would love to hear or discuss them! :)
More...
yes, I am unemployed, and I was complaining back when taxes were just $10.

But if your long ES is up 1% and your short YM is up 1%, you will make money because you are net long ES. They don't move point for point, If they did, when ES is up 1 point, YM would also be up one point.

You gotta figure this stuff out if you want to stay unemployed, otherwise, your stash will be gone and you'll have to get a job.
 
Quote from oldtime:

yes, I am unemployed, and I was complaining back when taxes were just $10.

But if your long ES is up 1% and your short YM is up 1%, you will make money because you are net long ES. They don't move point for point, If they did, when ES is up 1 point, YM would also be up one point.

You gotta figure this stuff out if you want to stay unemployed, otherwise, your stash will be gone and you'll have to get a job.
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You really can't figure this out, can you?

One ES tick is $12.50/0.25. One dow tick is $5/1. These numbers don't change regardless of what price the ES or YM are at. I'll let you figure the rest out and come back when you have it. Just private message it to me so I can keep this thread open to real pair traders. :) cheers
 
Quote from vincentvega:

You really can't figure this out, can you?

One ES tick is $12.50/0.25. One dow tick is $5/1. These numbers don't change regardless of what price the ES or YM are at. I'll let you figure the rest out and come back when you have it. Just private message it to me so I can keep this thread open to real pair traders. :) cheers
More...
an ES is worth 67k

a YM is worth 63k

If I go long 100 shares of a $30 stock

And short 100 shares of a $20 stock

and they both go up 1% on the day, what will be the affect on my account?

It would be very unusual for ES and YM to move by the same amount of ticks.

But you are correct, I am not a stock pair trader. In futures (since that is what you were asking about) we call them spreads.

If there is something called a futures pair let me know.

Also, what is the "dow drift"? never heard of it.
 
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