Trading the S&P/DJIA spread

I think the Dow has been leading the S&P down the last few days. In any case I think we are ready for a snap back with the major indexes going up, that may get the spread price moving.

I'm doubling up on my short position in the spread at 71, overall short at 52.
 
be an affect on the spread next month after the MSFT split?

that will change the weighting of it in the dow
although I guess some other components will go
up in weights to make up for it
 
Seth. I might be way off on this but is'nt the DOW equal weighted? There would be no adjustments to it unlike theSP which is cap wieghted? Any experts care to comment? I assume they are euqal since the components of the DIa are all same number of shares.
 
Seth - My understanding is the Dow is the sum of all the components' share prices divided by a "divisor" number. Not sure what, if any, effect dividends or splits has on the Dow, since I believe the divisor is recalculated on these occasions. More at www.djindexes.com

The spread has shot up quite a bit, unfortunately I am short at around 50. I am holding on for a little while longer to see if I can get some improvement before I close out of this position.
 
Quote from esc_trader:

Seth - My understanding is the Dow is the sum of all the components' share prices divided by a "divisor" number. Not sure what, if any, effect dividends or splits has on the Dow, since I believe the divisor is recalculated on these occasions. More at www.djindexes.com

The spread has shot up quite a bit, unfortunately I am short at around 50. I am holding on for a little while longer to see if I can get some improvement before I close out of this position.
More...

Yeah the divisor is updated when there are splits and dividends. The current dow divisor is 0.14418073. So every one pt move in a dow stock moves the dow about 7 pts.
 
Hi esctrader,


Sorry to hear that you are down on your current position. I posted a message a few days ago asking whether you use a stoploss but I never received a reply. Is it the case that so far you have not used a stop loss. If so how was it calculated.

Also please can you confirm whether I have the following concepts correct:-


When your price spread is at the bottom bollinger band you go long. You then exit the position when the spread hits the top bollinger band. At this point you would take a short position and exit when the price spread hits the bottom bollinger band, and so on.


Is the above correct?? If so I can see why it may not be easy to implement a stoploss, but even then it should still be a profitable strategy in the long run.



I look forward to your intelligent reply.
 
peugeot - Sorry, I missed that previous post. That is correct about the Bollenger bands. I will take a loss, but I don't have a quantifiable criteria to determine when to take the loss vs. when to double up. I am working on this, will probably be something based on a combination of time frames.

Also, I will take a profit before it hits the other side of the BB.
 
Thanks for the reply esctrader,



Things are getting much clearer now.

Now you just mentioned:-


"Also, I will take a profit before it hits the other side of the BB."


Would you be willing to say how you calculate WHEN you take a profit ?

Thanks for your time.
 
We are forming a proprietary spread trading company. If you have interest please send me a PM. We are looking for motivated traders with a proven track record. Spread trading experience is a plus that is why I am posting here. I have already discussed this with a couple people on this board and would like to talk to others. Thanks
 
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