As a former Bond local I'll pipe in here. Maverick, it's nice to hear that there is a romantic, traditionalist still around, but I have to agree with Bone. The gigs over. The reason the Euro, Funds, options, and ags are surviving in the pit is because of ACE and Globex's inability (or any electronic system' inability including EUREX) to replicate anything beyond "plain vanilla" spreads. Little institutional options volume in financial's involves just trading individual strikes. Spreads pricing is predicated on the Chicago term "Ginzi." If you give me an edge on 1 side I'll either give you back the edge on the other or split the bid/ask with you on one side. Obviously if one wants to do a 107-108-109 butterfly in bond opts. they're not going to give up the edge in 3 different strikes. Trades are "packaged". IMO it'll take years for those strats to be done easily by computer. But as far as outrights, it's clearly another story. It appears that a bunch of assholes like us trading from home or upstairs either via IB or through a member firm at any where from 60 cents to $3 a side can just as easily in aggregate, create markets several hundred up as the pit can.
PIMCO on Floor Vs. Screen
- Thread starter bone
- Start date
As a former Bond local I'll pipe in here. Maverick, it's nice to hear that there is a romantic, traditionalist still around, but I have to agree with Bone. The gigs over. The reason the Euro, Funds, options, and ags are surviving in the pit is because of ACE and Globex's inability (or any electronic system' inability including EUREX) to replicate anything beyond "plain vanilla" spreads. Little institutional options volume in financial's involves just trading individual strikes. Spreads pricing is predicated on the Chicago term "Ginzi." If you give me an edge on 1 side I'll either give you back the edge on the other or split the bid/ask with you on one side. Obviously if one wants to do a 107-108-109 butterfly in bond opts. they're not going to give up the edge in 3 different strikes. Trades are "packaged". IMO it'll take years for those strats to be done easily by computer. But as far as outrights, it's clearly another story. It appears that a bunch of assholes like us trading from home or upstairs either via IB or through a member firm at any where from 60 cents to $3 a side can just as easily in aggregate, create markets several hundred up as the pit can.
Last Friday, September 05, the Bund traded almost 2 million contracts. Granted, it was rollover, but what the hell do they do with them all? Eurex has 10,000 screens worldwide. Firms like PIMCO and big swap and debt dealers absolutely love the liquidity, ease of use, and bigtime savings in terms of execution. I've seen 5 and 10 thousand lots trade. I've seen market orders empty the book twenty and thirty tics at a whack. Freakin' unbelievable. Even on Civilian Unemployment Fridays at 7:30 and on September 11, 2001, the book was and is very thick. You don't see jackass locals like me play alot of games and bid or offer for one or two thousand and pull them like they do on the CBOT A/C/E system - because in Eurex, there's always some big swinging d**k in London or Frankfurt or Rome or wherever that will TAKE THEM ALL.
I wish it were cheaper to trade on the CBOT screen system - and I get member rates. But I guess by next year it WILL be alot cheaper to trade US sovereign debt futures - either through the CBOT or the Eurex.
P.S.: Did you guys hear that Bear Stearns bought 20,000 Eurodollar calls Friday, Sept. 12? I heard they were like Jun or Sep 2004 expiry.
I wish it were cheaper to trade on the CBOT screen system - and I get member rates. But I guess by next year it WILL be alot cheaper to trade US sovereign debt futures - either through the CBOT or the Eurex.
P.S.: Did you guys hear that Bear Stearns bought 20,000 Eurodollar calls Friday, Sept. 12? I heard they were like Jun or Sep 2004 expiry.
Nitro,
That is a tough question. I would say there are about 200 traders in the Dow pit and maybe half of them are just doing pure arb between the mini's and the big. It seems as though if they can get the arb off they trade and if they can't they don't. The other half primarily trade the Dow straight up. Also a lot of the arb guys trade the Dow/SP spread. I personally trade spreads between the Dow and the Dow stocks. There are so many combinations and permutations with the indexes and the underlying and I must say there is a boatload of money to be made. We are starting to see a lot more retail money come in on the mini's now. The CBOT is heavily marketing the Dow product and now with the the common clearing agreement I think order flow could explode because the margins to put on spreads for retail customers will be very generous.
As for you Bone, you and I have had this argument before regarding the treasury complex. Look, I agree with you about the treasuries. Personally I don't care about debt products, I have been in index products all my life and there is soooo much money to be made there I don't think I would ever move over to debt. The types of spreads I can put on are endless and the volatility of these spreads blow bonds out of the water Eurex or otherwise. The CBOT will find a way to survive. They always do. So will the Merc. My guess is they will keep creating new products and yes I also believe trading costs will come down substantially. Of course I have always said that traders who complain about commissions shouldn't be in this business in the first place but that is another thread. The bottom line is everyday our clearing firm posts the numbers for the Merc and the CBOT for percentage of contracts traded electronically and pit traded. These include options. The merc averages about 43% on the screen and the CBOT averages about 48% to 52% on the screen. Until those numbers get above 75% you won't see the pits go anywhere. I personally don't care as I no longer trade in the pits. I am just stating the facts. Happy trading.
In answer to an earlier question posed to this thread, as a former stock-index futures floor trader I would have to say that being on the floor most definitely gives you an "edge" and "feel" for the market that trading off of a screen never can.
As for NYSE market-makers turning off their screens in October of 87, that may have happened. Yet, getting orders in and out of the S&P pit wasn't a "cake-walk" either, especially since most of the locals were in the bar, not wanting to deal with the risk, and the bid/ask spread got blown out into 2-5 handle markets cause no one wanted to deal with the volatitlity. I'd like to know how many guys upstairs felt that they got "fair" and decent fills during that week . . . I can guarantee you that they got freaking taking to the CLEANERS!!!
As for markets that only exist for the sake of arbitrage, I do not believe that they last very long. Simply take a look at the NYFE stock-index contract that used to get arbed against the S&P. The NYFE used to have about 100 guys in the pit back in 1987, with volume around 15,000 per day. Now the contract is completely dead, having seen volume dwindle to below 100 contracts per day. In fact, ten years ago the NYFE stock-index contract was barely trading 2,000 per day, and all of the Big Boys like Goldman, Kidder, Salomon, Morgan Stanley, Dean Witter, and Shearson took their clients and paper to the S&P. Besides, what portfolio manager uses the NYA Composite as his "bogie"?
Answer: No one.
Bottomn line, if you don't have outside "paper" and institutional market participants in the flow whose performance is tied to a significant index type of "bogie", along with high commissions relative to "other" similar products, the contract dies a slow, Chinese water-torture type death.
Case in point: NYFE - RIP.
As for NYSE market-makers turning off their screens in October of 87, that may have happened. Yet, getting orders in and out of the S&P pit wasn't a "cake-walk" either, especially since most of the locals were in the bar, not wanting to deal with the risk, and the bid/ask spread got blown out into 2-5 handle markets cause no one wanted to deal with the volatitlity. I'd like to know how many guys upstairs felt that they got "fair" and decent fills during that week . . . I can guarantee you that they got freaking taking to the CLEANERS!!!
As for markets that only exist for the sake of arbitrage, I do not believe that they last very long. Simply take a look at the NYFE stock-index contract that used to get arbed against the S&P. The NYFE used to have about 100 guys in the pit back in 1987, with volume around 15,000 per day. Now the contract is completely dead, having seen volume dwindle to below 100 contracts per day. In fact, ten years ago the NYFE stock-index contract was barely trading 2,000 per day, and all of the Big Boys like Goldman, Kidder, Salomon, Morgan Stanley, Dean Witter, and Shearson took their clients and paper to the S&P. Besides, what portfolio manager uses the NYA Composite as his "bogie"?
Answer: No one.
Bottomn line, if you don't have outside "paper" and institutional market participants in the flow whose performance is tied to a significant index type of "bogie", along with high commissions relative to "other" similar products, the contract dies a slow, Chinese water-torture type death.
Case in point: NYFE - RIP.
Maverick,
Thanks for the response. Very interesting about the percentage of traders in the pit doing pure arb. I would have thought the number would be higher than 50%.
I too am interested in trading DOW underlying stocks with YM (dispersion trading.) I find it fascinating and I am starting a study of it.
I have traded the YM before. But trading such a thin market with institutional interest scares me, especially in the summer - witness the last time YM sold off for several hundred points intraday. I asked for a "fat finger" blocker in the YM the way the ES and NQ have it at the Chicago Expo to the CBOT YM presenter. He said they are definetly looking into it.
nitro
Thanks for the response. Very interesting about the percentage of traders in the pit doing pure arb. I would have thought the number would be higher than 50%.
I too am interested in trading DOW underlying stocks with YM (dispersion trading.) I find it fascinating and I am starting a study of it.
I have traded the YM before. But trading such a thin market with institutional interest scares me, especially in the summer - witness the last time YM sold off for several hundred points intraday. I asked for a "fat finger" blocker in the YM the way the ES and NQ have it at the Chicago Expo to the CBOT YM presenter. He said they are definetly looking into it.
nitro
I like to call the Dow pit the cowboy pit since it seems to fit the personality of that pit so well. It is by far the loudest most obnoxious guys you will ever meet. The big attraction I think is for $180 a month you can lease a seat and be trading dow futures for less then a buck a contract roundtrip. So obviously that's a pretty tough deal to beat. Most of the guys who are not arbing are trying to get a few ticks of the paper coming in. If the mini's are 9504 bid guys in the pit will be trying to get long at 9500. Basically what a lot of them are really good at doing is playing the levels. What I mean by that is the pit moves in 5 pt increments for the most part, so say its 9500 bid and 9505 offer the next level up will be 05 bids at 10 offers. So a smart trader will try to pick off a trader that is not paying attention and buy his 05's while the mini's might by 03 offers or 04 offers and then the mkt quickly goes 05 bid in the pit and 10 offers and he will offer out the 5' s he just bought at 10 or maybe even 15's if the mkt is running. The dow can move pretty fast once it breaks so picking off weaker traders can be quite profitable.
I am very excited about what I do, but I am always afraid to talk about my strategy because I don't want everyone to jump on the bandwagon. I think I have found something as close to a grail as there is but I keep really quiet about it. None of the guys in the pit or even on the screens know exactly what I am doing. I think you will find a lot of very interesting strategies that can be employed with the dow stocks and the dow futures. It is a very unique index because there are only 30 stocks and its price weighted. I am amazed by reading these boards that more people have not picked up on some of the very obvious things that can be done with this setup.
Damn, damn, damn!!!! Your doing this too! Sh*t, F*ck! Wonderful. Just kidding. Actually just saying that your spreading GE or IBM against the Dow is like Saying your not the only one getting long or short the mini's. There are a million ways you can trade the spreads. I think I trade them differently then anybody else. Problem is I'm afraid to talk about it too much to find out. I have not seen one post on this thread, not one that really describes what I am doing. There are a couple really big size guys in my office that also do spreads and they don't trade this way either so I don't know. There are many many different ways to create value in the indexes. And the word value here is meant to be ambiguous
One thing for sure: Out of the three major stock indices, DIA is the easiest to distort price. All one needs to do is put out simultaneous "highballs" in a dozen or so stocks that have a wide bid/offer. Much harder to do in a Cap weighted index where the heavier stocks have a tighter spread. In the Dow, all dogs are equal so to speak. DD and AA are as important as GE or IBM.
I haven't been around the Dow pit since the advent of YM, but in the pit's infancy most arbs, with the exception of Timber Hill, were trading DJ vs. SP. While there is certainly a high serial correlation between the two, it was far from a riskless arb. While in SP most local's fixate on cash or it's indicators, i.e. trin, ect., Dow locals would key on SP. Thus the pit was immunized by much of the intrinsically "noisier" DIA cash.
It appears that even today, "the turns" in the Dow and in NQ are precipitated by SP or ES turning first. In other words if ES goes bid, NQ and YM will go bid. Whether NQ or YM "stick" with ES at that point is largely dependent on key components in the corresponding indices also turning bid. In other words if ES goes bid NQ will at least trade the offer if not turn bid itself. That's merely a function of inter market spreaders trying to race the tape. Same in YM.However unless say MSFT, CSCO, INTC also turn with ES then the NQ bid will fade. Hence the making of a spread that expands. Obviously we all see days that ES is up 3.50 and NQ -4.0. Those movements aren't magic. They are just a reflection of leadership changes throughout the day in various stocks. What makes these relationships really cool is MSFT and INTC are members of all three index's!So hat's off to Mav for finding a combo in this infinite maze that works.
I haven't been around the Dow pit since the advent of YM, but in the pit's infancy most arbs, with the exception of Timber Hill, were trading DJ vs. SP. While there is certainly a high serial correlation between the two, it was far from a riskless arb. While in SP most local's fixate on cash or it's indicators, i.e. trin, ect., Dow locals would key on SP. Thus the pit was immunized by much of the intrinsically "noisier" DIA cash.
It appears that even today, "the turns" in the Dow and in NQ are precipitated by SP or ES turning first. In other words if ES goes bid, NQ and YM will go bid. Whether NQ or YM "stick" with ES at that point is largely dependent on key components in the corresponding indices also turning bid. In other words if ES goes bid NQ will at least trade the offer if not turn bid itself. That's merely a function of inter market spreaders trying to race the tape. Same in YM.However unless say MSFT, CSCO, INTC also turn with ES then the NQ bid will fade. Hence the making of a spread that expands. Obviously we all see days that ES is up 3.50 and NQ -4.0. Those movements aren't magic. They are just a reflection of leadership changes throughout the day in various stocks. What makes these relationships really cool is MSFT and INTC are members of all three index's!So hat's off to Mav for finding a combo in this infinite maze that works.