SpreadProfessor Clients - Thanks !

bone said:
I encourage my clients to start out trading one lots live and to to lever from there. We also talk about levering when your account capitalization and trading record improvement dictate it. Clients will typically have a few to several positions on at once and in just about any product suite that is traded electronically, and of course, we swing trade. So I think that the implosion risk is lower for my clients who are following my advice.

From my experience, implosion risk is more personality and emotional state oriented.

YMMV
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Hi Bone,
You've mentioned before that one advantage of spreads is the large number of them which gives you many more choices than with pure directional plays.

I've seen you write about your use of OI to reduce the number of potential trade candidates. Still, given the large number of possible spreads (thousands) are you able to automate the reduction of this list to a manageable and somewhat prioritized set? Am not asking the mechanics of how you do it but rather do you have a means by which you accomplish this?

I'd think that portfolio construction is a key factor in the success of any trading effort and especially so when you have such a large set of possible spreads to trade and that doing this manually would potentially lead to quite a lot of variance in results.

Thanks
 
Tony, you are correct in stating that there is a very large population of spread combinations. We segregate our inter and intramarket spread combinations by product and spread type (calendar pair, butterfly, condor, etc.) - and that makes the task more manageable. We also have some rules with respect to what features a spread combination should have - and you mentioned OI correctly as one of those.

Keep in mind that we are swing trading here, and using longer timeframes to model. We're not getting a dozen really good signals each day. One practice we are particularly fond of is "stalking" trade entries. We track and segregate spread combinations that we feel while not "ripe" at the moment, hold good promise for an entry in the near term.
 
bone said:
New CBOT Treasury Futures Price Ratios for the March 2016 Contract, effective Sunday November 15 open for trade date Monday November 16:

http://www.cmegroup.com/trading/interest-rates/files/ics-ratios-2016-03.pdf
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Hi Bone,
Would you please translate any one line in this doc for me. For example, line 1 (TYT) with a leg ratio of 5:3. Does this mean that to trade one unit of this spread, long for example, that I'd buy 5 contracts of the 2-yr Notes and sell 3 contracts of the 3-yr Notes? I.e. a total of 8 contracts for a one-unit spread. Am I interpreting this correctly?

Thanks
 
How many of you guys hold spreads when one leg becomes the front month? Do you just exit beforehand or continue on as if there's no significant change?
 
i960 said:
How many of you guys hold spreads when one leg becomes the front month? Do you just exit beforehand or continue on as if there's no significant change?
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Intercommodity spreads like ZF H6 vs ZN H6 (the FYT), or ES vs NQ will almost always use the front month, since these are spreads between highly correlated (both statistically and fundamentally) but different instruments, and the product's open interest and traded volume will be dominated in the front month until the roll expiry. Here is an example:

http://www.cmegroup.com/trading/equ...0_quotes_settlements_futures.html?2015101631=

Intracommodity spreads like CL K6 vs (CL M6 * 2) vs CL N6 work because products like CL and NG and GE and ZC for example have significant open interest and traded volume in many different months. There is significant commercial activity in these distant months. The front month is typically dominated by speculative and immediate demand order flows. Intracommodity spreads are the same product but different expiries. Here are two examples:

http://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude_quotes_settlements_futures.html

http://www.cmegroup.com/trading/int...s_settlements_futures.html?view=disablemobile

As a rule for my clients, we like to exit intercommodity spreads before expiry, and if they are winners and are still performing we will roll them. For intracommodity spreads, we like to typically exit well ahead of expiry.
 
i960 said:
How many of you guys hold spreads when one leg becomes the front month? Do you just exit beforehand or continue on as if there's no significant change?
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I think you are referencing intra spreads only here not inters given that inters are normally traded front against front. As intra spreads come towards the front their dynamics change and you have to be careful as new flow will come into the your spread. As bone says you need to be aware that the immediate front month demand is going to have an impact on your spread. In addition you also need to be aware of the relevant front calendars. Say for example you are in a MZMZ condor or MZM fly you need to be aware that the front MZ leg becomes the front 6 month calendar in November and therefore will start attracting new spread flows which will change the dynamic of your spread. So at time of writing the front 6 month calendar is MZ in Brent given the Dec5 (Z5) contract has just expired.

GL
 
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