pairs trading

trader88 · Aug 15, 2007

Quote from Don Bright:

Yes, be sure to listen in to Paltalk, I'll know by Tuesday which day, after the close, we'll be doing it.

Don

Don,

Any idea when this is going to happen?

Don Bright · Aug 15, 2007

Quote from trader88:

Don,

Any idea when this is going to happen?

Put on temporary hold, with all this fun in the market, we'll likely wait until next week.

Don

TraDaToR · Aug 16, 2007

Quote from DarthSidious:

Wondering why the discussion is so focused on stock pairs trading. I mostly trade futures outright, but a big chunk of my trading is spread between index futures pair. Like ES-ER2. Chart it and see. (Many other combinations possible + lot's of fun in fx pairs - but I haven't gone there yet)

All standard pair trading "wishdom" applies. However,
1) neither leg would get "taken over"
2) spread margins are downright sexy
3) No interest cost, ever
4) more intraday noise than you can handle
5) dream of leg-in / leg-out crowd

It's hard to get completely market neutral based on notional values of the contracts unless you are trading very big size, but I am willing to live with it. I personally don't see it as a problem actually

Hello,

I am spread trading indexes futures as well( really great since volatility increased

... ), but I can't figure out how you manage to spread ER2 / ES??? ES tick is too big to let some profits available to me, or perhaps on a very fast TF but it would be more like pure arb...or are you on a really LT time frame???

Profits must be very thin on this spread.

DarthSidious · Aug 16, 2007

Quote from TraDaToR:

Hello,

I am spread trading indexes futures as well( really great since volatility increased ... ), but I can't figure out how you manage to spread ER2 / ES??? ES tick is too big to let some profits available to me, or perhaps on a very fast TF but it would be more like pure arb...or are you on a really LT time frame???

Profits must be very thin on this spread.

Um.. what's long TF? If 1 - 3 day is long TF, then yes. It might be possible to "scalp" spreads, but it's beyond me. I know my limitations.

This is NOT arb. Not even close. And the profit (AND loss) potential is anything but thin. You actually couldn't have asked this question on a better day to prove the point. Let's see what happened today:

Say, you established position yesterday @ close:
+1 ER2 @ 758.00
-1 ES @ 1414.00
Basically you are long a smallcap basket worth 758*100 = 75,800 and short a largecap basket worth 1414*50 = 70,700. OK, not a perfect hedge, but close enough.

Cover today @ close
-1 ER2 @ 774.30
+1 ES @ 1424.75

P&L = (774.30 - 758.00)*100 - (1414.00 - 1424.75)*50 = 2167.50 - commission

And all this on one pair of emini. If you were on the wrong side? Well... :eek:

Honestly, this is one of the most extraordinarily volatile day I have seen so far as far as the spread is concerned. It just does not happen regularly.

Don Bright · Aug 17, 2007

Don't like using e's in any of our type pairs trading. Baskets vs. SPY is done by a very few, and we're not real fans of that either. We like having some confidence in our research of fundamentals.

FWIW,

Don