Spread Trading Strategies

I don't post my trades very often but here's a bit of what computer magic can do, I could call this a gem spread so... you're welcome. Computers (and automated arbitrage) tend to be good at finding noisy derivatives, as well as trending ones like the AET-CI deucy posted (which is by the way ripe for shorting too, at this point).

Short: NATL
Long: OIA

Spread chart:
l1zfr.jpg


Trade analysis:

Relevant News:
NATL: minor news only. Rally from Dec 06 followed by announcement of new COO and an article in Seeking Alpha that the stock has good ratios. Nothing that should influence the price so much.
OIA: none

Volatility: high
As you can see the range of the spread chart is about 10% and it can whip that in just a week or so, so I entered a small position on this one.

Notes:
This trade could've been done with any other Munis which you think are oversold. For example another candidate instead of OIA just as good was MUJ. It seems similar funds have NATL as well as Munis in their portfolios, so they track each other with some noise (as seen in the spread chart, very noisy).
NATL is clearly overbought if compared to the sector as well as similar stocks, while OIA is not really too oversold but it is slightly. I find it more likely that OIA will be a loosing leg. 15% probability trade will be adverse in the next 5 days. Entered short spread at +8.71% of spread, Stop set at +16% of spread value, target, depends on capital requirements and time.

Oh and yes, NATL is low volume, but I'm sure you'll figure your way around that. Too bad if you're a 10M fund tho and not a retail pundit like me.

As always, I diversify heavily so this is just one of 60 spreads I'm trading, while my systems are monitoring about 1000. I didn't put much effort into this one but just thought I'd post it.

Happy hunting.
 
Quote from clarodina:

how would you overcome the problem of natl low volume without incurring big buy sell spread?
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I didn't find that problematic, I just post a sell limit inside the book and wait. It gets filled. I also have an automated quote tracking system that places my order on the inside. It's a judgement call when to hit the bid/ask, when to chase it, etc, but in most cases with these illiquid stocks, I get filled just under the ask if i'm selling. I got this one filled at 27.95 and the ask was 28.03 or something. Waited only for about 3 minutes for the fill. In a fast moving market it's a problem but not today, and not most of the time. For best execution I pay close attention to the Level II. Either way, the problem is even less severe because it's a spread. If they both go one way, you get a good fill on at least one of them.

PS
Yay, I'm up 2% already...
 
"I got this one filled at 27.95 and the ask was 28.03 or something"

what was the sell price when you got fill at 27.95? 0.08 buy sell sprd is accomodating

so your both legs would not fill concurrently? What if your sell limit would not get fill thru out the trading hours what would you do due to you have one leg fill but not the other?
 
Quote from clarodina:

I got this one filled at 27.95 and the ask was 28.03 or something

what was the sell price when you got fill at 27.95?

so your both legs would not fill concurrently? What if your sell limit would not get fill thru out the trading hours what would you do due to you have one leg fill but not the other?
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I remember the spread was 22 cents so it was 27.81 on the bid.

I don't panic, they don't always have to get filled at the exact same time. Sometimes i enter a position for hours, slowly, one order at atime. I watch the tickers, if i see action and volatility i either hit the bid/ask or cancel all. If the market is close to getting closed i'll often either lower/raise my LMT or just hit the bid/ask. I usually get fills in early and mid-session, so that was never a problem. It's not very complicated you just have to be aware of everything that's going on, be able to see the info. I have my own software that helps too, so yeah...
 
i know your trying to keep these threads alive.. but there going to get you for duplicate posts... it hurts there search engine rank to have a bunch duplicate content across there site..

they are in different catagories.. you could maybe capture attention by writing something a little different that relates to the "thread" like in this case TA.. maybe you have a divergence factor or dollar spread average you have been following :)
 
Quote from deucy28:

My first pair posted in 1 1/2 months.

HOT / HST

4 charts of varying time lengths posted at
Main / Trading / Charts of Note:

http://www.elitetrader.com/vb/showthread.php?s=&postid=3737253#post3737253
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See NEWS on these chart series with today's post of current chart.

Decent trade if you were in it !

Hold position or take profits ? Note the considerations (1) posted on today's chart and (2) advisory in red below chart !


http://www.elitetrader.com/vb/showthread.php?s=&postid=3745842#post3745842
 
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