Program Trading

D

DblArrow

I have been trading the Mini Dow (I already read that thread and still trade it) and am wondering about trading programs. Not trading systems.

One site said that once the PREM.X hit a specific number $2.16 it will buy a bunch of predetermined stocks. If it hits $-1.82 it will sell a bunch of predetermined stocks. Based on the volume of the stock, in block trades. Those are tommorrows numbers.

My questions are - is this a common occurance? Are there a number of firms that trade this way? Is the PREM.X used by individual traders in a similar manner? And how are the numbers derived? Secret formula? Proprietary?

It seems if this is true, for one trading the Dow, this might be an edge of sorts.

Thanks and make 'em pretty, Chris
 
Perhaps this is to tough a question?? Or maybe too dumb to require an answer?? Or I am just too ignorant and nobody wants to bother??

Any help??

Thanks, Make 'em pretty, Chris
 
My understanding is that program trading is a very common occurance. However, the exact values of PREM for when it occurs can and will be different from program to program. They also change from day to day. So in general, knowing where the PREM is can be helpful, but I wouldn't trade strictly on some posted buy/sell program values.

A common program trading site to look at, if you haven't already seen it...

http://www.programtrading.com/buysell.htm
 
Thanks echo, that is where I got my information.

I was just basically wonder if this is how some trading programs work.

Make 'em pretty, Chris
 
As I understand it, it's a very common thing.

But the numbers will be different for each firm depending on:

Their basket of stocks
Any derivatives they factor in
Their cash on hand
Their interest rate they are getting on their cash on hand
Their cost of carrying
etc.
etc.
etc.
 
common?? program trading accounts for 20-30% of the volume on the NYSE on any given day. dow jones news releases this on its news feed every day after the close. i haven't noticed it lately, but did so when i had access to ILX about a year ago.
 
You literally cannot trade the index futures without understanding program trading and the relationship of the TICK and PREM. Basically, when the PREM gets too high, indicating futures are too expensive relative to cash, then firms will sell futures and buy cash, causing a big surge in TICK. Their objective is to lock in the differnce, ie the PREM, but the effect is to cause the market to rally, even though the PREM will fall. Now the trick is that sometimes you can safely sell a TICK surge but other times the programs just keep hitting it or the high TICK is indicative of real demand.

The actual fair value numbers are derived by calculating the cost to buy the cash index minus dividends. In effect, it is the cost of carry. There are no secrets involved, it is just a straighforward calculation.
 
Originally posted by AAAintheBeltway
...then firms will sell futures and buy cash, causing a big surge in TICK.
More...

Hmmm...
used the PREM side of it, but never really thought about the TICK coming into play. I'll watch for that also!

If the tick doesn't change significantly, is that an indication that they might not be coming in with the programs?
 
http://www.elitetrader.com/vb/showthread.php?s=&threadid=6963&highlight=tick+trin

dblarrow, did you see this thread. The question of delayed spx data really confused me.

I like the way AAA just explained using tick and prem. I have not been able to use prem myself.

today at 11:36, the tick surged then prem spiked up to high levels of day. I just did not see long or short signal in the action. If I understand right, the prem spikes and the futures continue up this is a signal of sustained buying pressure?
 
Originally posted by redzuk
http://www.elitetrader.com/vb/showthread.php?s=&threadid=6963&highlight=tick+trin

dblarrow, did you see this thread. The question of delayed spx data really confused me.

I like the way AAA just explained using tick and prem. I have not been able to use prem myself.

today at 11:36, the tick surged then prem spiked up to high levels of day. I just did not see long or short signal in the action. If I understand right, the prem spikes and the futures continue up this is a signal of sustained buying pressure?
More...

No, I did a search but some how missed this one - thanks that helps!

Make 'em pretty, Chris
 
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