Scalping fixed income ETF's

A

andrasnm

This strategy requires a lot of money, relative to most under funded individual trader's but it is worth it.
It also requires a good, cheap broker with who you can short ETF's...
What you do is divide your assets into a long and short camp.
You short the overpriced ETF's (you can always check the book value versus trading price) and go long the other half with those that are under priced in terms of book value. Then you just head to the beach. Your goal is to make an 1/8 1/4 perhaps if a little greedy less on your positions. You can wait in case you are "hooked" in some positions as these instruments are not all that volatile and they pay dividends. If you have enough account size the long positions will pay you enough to cover your expenses. This is an ideal scalping strategy for a decent prop house.
 
If I am not mistaken it is public record, IBD list them funds with the book value price and percentage discount.
This strategy was in its hayday during the 1/8 era but decimalization only lowered the potential money making and the speed of executions. If you set your quote machine to scalp 1/8 decimaization won't change it, only you may have to wait in line while others are giving up the price.
Quote from hoodooman:

If you don't mind me asking, how can you check the book value (NAV?) of an ETF.
More...
 
I'm not clear on this. Is this a daytrading strategy? Or a swing trade (multi-day) strategy?

Or is it a combination, meaning, when you can't get out for a quick profit the same day, you hold several days until there's a reversion to the mean (high-valued ETF drops and/or low-valued ETF rises)?

Sounds like a twist on the pairs-trading strategy.
 
It depends how soon you get filled (now, it is likely multi day). After you put in the bid and/or ask - you wait. If the ETF is NYSE traded the specialist must fill you, it is of course different if the ETF is not exchange traded but most are. Obviousdly due to cost of executions you cannot scalp for pennies but then again - you might - of you get a decent deal from the prop shop.
Quote from sandygray66:

I'm not clear on this. Is this a daytrading strategy? Or a swing trade (multi-day) strategy?

Or is it a combination, meaning, when you can't get out for a quick profit the same day, you hold several days until there's a reversion to the mean (high-valued ETF drops and/or low-valued ETF rises)?

Sounds like a twist on the pairs-trading strategy.
More...
 
Quote from andrasnm:

You short the overpriced ETF's (you can always check the book value versus trading price) and go long the other half with those that are under priced in terms of book value.
More...
Hedging funds over/under priced relative to NAV...
Does not work for various reasons:

(1) This over/under pricing is COMMON KNOWLEDGE.

(2) There is usually an obscure reason why a fund is over/under valued relative to NAV.

(3) Any reversion to NAV takes months or years...
So you cannot build a trading business around this.

In general...
If a trading idea is as simple as yours...
Something a smart 14 year old with one computer can implement...
It will never work.

But go ahead and find out the hard way....
It may lead to something worthwhile a few years from now.

And if you ever think in terms of "going to the beach"...
Then don't even bother...
Because you are too lazy to succeed in the ultra-competitive world of trading.
 
I know someone in person who used to make 50k a month doing exactly this. The idea is that eventuallty prices go back/forth enough to get your 1/8 or 1/4. This may have changed but he did this. The selection of funds to short or go long does not even matter, I think it is a good idea to use NAV as a good measure.
Back in the days of pre decimalization he used the bid/ask volume to initiate a trade.
I mean if a lot of old ladies wanted to unload a bunch of xyz so the quote was somthing like 600000 offered 6 1/8-1000 bid 6 - he might short 2000 shares at 6 and a teenie just to jump on the sell side, or even at 6 if there was an uptick. The wind was blowing his way, the short side. Often the specialst played games, but eventually he bought it back lower. This is no brain surgery he was a kid our of columbia. I think it might still work.
Quote from DeeDeeTwo:

Hedging funds over/under priced relative to NAV...
Does not work for various reasons:

(1) This over/under pricing is COMMON KNOWLEDGE.

(2) There is usually an obscure reason why a fund is over/under valued relative to NAV.

(3) Any reversion to NAV takes months or years...
So you cannot build a trading business around this.

In general...
If a trading idea is as simple as yours...
Something a smart 14 year old with one computer can implement...
It will never work.

But go ahead and find out the hard way....
It may lead to something worthwhile a few years from now.

And if you ever think in terms of "going to the beach"...
Then don't even bother...
Because you are too lazy to succeed in the ultra-competitive world of trading.
More...
 
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