Why Is The Obvious Not So Obvious?

[fairvalue]

correct..i think

open interest is of course what it says..how many contracts are open..for every buyer there has to be a seller..so..at close of day..we will have a change in OI..it will either increase..or decrease..depending on the volume traded..but..if the volume traded is high..lets just say 1.4 million contracts..and the OI only changes by + 60,000 contracts..what does that tell us about the ES trading for the day in question ?


don't forget to write down your %s..either guessing or working out !

Recap:
Sorry, but I still don't completly get it. We got three numbers from CME we are currently talking about:

1. Volume
2. Open Interest
3. Change

1. Volume: how many contracts are open
2. OI: number of contracts traded in a given period
3. Change: change in OI, new opened contracts

If we we are investigating for "speculative trades", wouldnt it be better to look at the Volume alone? As I understand it, these are the trades which were open and closed at the same day - therefore short-term "investors".

And the OI change would tell me, who is willing to hold a position mid- or "long"-term investors.

If I deduct the Open Interest Change from the Volume, is this "appropriate"? Ahh, I get it, while writing it down

You are such a good teacher

Open Interest is a, lets say, accumulated "account". It changes from one day to the other and therefore the Change is part of the overall traded (daily) volume. ok - I got it - thx

 

[fairvalue]

now the hard bit..very easy to understand the OI and Volume..or so we think at the moment..but let's go on that assumption..it is simple maths !

next..we know the index futures market is a free for all market..as in..no market makers required for the most liquid futures contracts..although newly launched contracts have MM's like the MES..and no doubt MM's trade the ES futures market..but..the options markets are different..due to the high risk associated with selling naked puts..and high margin requirements..and..some brokers will not allow short selling of options in certain types of accounts

so what..well we therefore assume that the options market is not a free for all in the same way as the futures market..and as such..will always require market makers..

if any expert want's to jump in and correct me here..fell free before i continue with the assumptions !

• OI and Volume, got that - for the moment
• futures market vs. option market
  • are you trying to tell us, that the liquidity in the futures market is sufficient that no market maker is necessary and in options markets there is one?
  • newly launched option index futures have Money Makers involved (MES)
  • due to asymmetric risk profile of options, Market Makers are limited in their endevours on that market
  • the assumption is, that options market always requires Market Makers

 

[fairvalue]

of course there is a question..how important the answer is in relation to short term trading is debatable..yet..if nothing else..very interesting !

if i decide to sell 1 ES naked put..provided my broker and account size allows same..then if the ES rises i make money..but it is limited to the premium i have received for selling the put..if the ES falls below the strike price..then i lose money for every tick that is below the strike minus the premium

if i buy the put..i am on the other end..simple..this time it is unlimited gain if market falls..sweet fuk all if market rises..i LOSE premium PAID if the ES futures is near the strike price at expiration..feck..now we have that stupid time = money thing back again

so..how the hell can we make something out of all this OI and volume data..and..does it really matter in relation to what is happening on the charts !!!

What can or cant a Market Maker do in such a situation? He will be restrictet?

• assymetric risk associated with options
• writing an option is associated with a fixed loss (get that premium) and unlimited loss
• buying an option is associated with fixed loss (pay the premium) and unlimited profit

Questions:

• therefore a Market Maker won't write Put/Call options, if there is a possibility that the market/price will go against him?
• What tells us this in relation to the future market - I think the mentioned DOM the pointer, but I have to close for today

nice session btw ...

 

[M4-1]

well..you are fairvalue..so you should know

anyway..the point is this..we don't work as mm's or brokers..so..like all the other plebs we can only try and make some sense out of all this crap !

maybe the likes of mr. morse might step in and educate us..as he seems to have been a mm in the past..so should have a lot more to offer than our way of thinking !!

my take is this..but remember..it really doesn't matter..that is the main point..this is nothing more than a simple excercise to try and get the plebs taking about something that is very interesting..and..very important in relation to how the index futures really work..we don't care about anything else but the ES..period !!!

so..OI as per your Google search..number of contracts open in the ES..that simply means..at the current time the average daily OI is around say 2.3 million contracts..therefore..of all the people in the world trading the ES futures CONTRACTS..as the fugure is just not for near month of Dec 2020..but for all Open Interest..we have 2.3 million buys matched with 2.3 million sells..as..for every buyer there has to be a seller !!!!

next..let's say today the OI change on yesterday is -40,000 and the Vol traded is 1,340,000

our new OI is 2,300,000 less 40,000 or 2,260,000

so..of the 1,340,000 traded..we had 1,300,000 spec trades today..or..Algo trading plus a few plebs

and..only 40,000 has come off the longer term traders commitment..or the OI

the BIG question of course..is..how much of the remaining 2.3 mil OI is attributed to mm's..hedge funds..large institutions..bla..bla..bla

we are only interested in the mm's..as they are the ones who have the means and opportunity to move price..and..the reason being..that is there business

enter the options market..as the majority of plebs buy options for the limited risk and unlimited reward..then the mm has to sell the options to them..hence the mm is exposed to unlimited loss for a small premium..therefore..to protect himself he must hedge his positions in the futures market..

if we look at options OI the put/call ratio is currently high..as in around 2:1..so..there are twice as many puts traded as there are calls..

so..we now assume that the majority of options traders are betting on a market fall..hence the high put/call ratio..but..who controls prices mostly..well.. unless there is a black swan event..where everything normal goes out the window..the mm's control prices in the options market..but..as the traded options are based on the futures expiry..then..if the put/call ratio is high..as it is now..the mm's don't want the ES price to fall..which COULD be a reason why it just won't go down at the moment..even with ALL the bad news about !!!!!

interesting stuff..and hopefully some expert will jump in and put us right..but..don't hold your breath

M3

 

[Vindago]

Sorry, all of this is way too complicated for my taste, also non having a standard training in trading (never even bothered to learn about options, never traded them never will) there is too much I don't know and I do not much care to know.

I just look at the chart and trade what I see

 

[Vindago]

usually, I do that, but often times I am too shy and miss the good trade

like today on NZD.USD... I missed the up and the down, but what you know, there is always tomorrow

 

[M4-1]

Sorry, all of this is way too complicated for my taste, also non having a standard training in trading (never even bothered to learn about options, never traded them never will) there is too much I don't know and I do not much care to know.

I just look at the chart and trade what I see

ok course..but there is always a reason behind something..nothing just happens..for instance..look at our current system of education..pathetic..and it was highlighted by Montaigne back as far as 1580..and..his predictions have surely come true over the centuries..

"tant d'ânes chargés de livres"

instead of donkey put in asses

i must see if i can dig up a powerpoint presentation i cam across a few years ago..some "respectable" financial guru saying "there is only one way to make money trading the ES..and that is to trade like the pro's trade"

what do you think of a donkey statement like this

 

[M4-1]

usually, I do that, but often times I am too shy and miss the good trade

like today on NZD.USD... I missed the up and the down, but what you know, there is always tomorrow

you might have saved yourself some money

my last 9 or 10 or 12 trades.. i really can't remember the exact amount..were all winners..so i am in no hurry to give back any of that..but..the last one where i closed 2 short MES contracts pushed the boundary a small bit..it is a very bad habit to double up on your losers..believe me..i know..unless you have some very promising looking charts..then it really is monkey trading..and you might as well get ready to see all your nice profits evaporate with one silly mistake..so..as you say..trade what you see..not what you think..or..even better..not what you think you see

 

[Vindago]

ok course..but there is always a reason behind something..nothing just happens..for instance..look at our current system of education..pathetic..and it was highlighted by Montaigne back as far as 1580..and..his predictions have surely come true over the centuries..

"tant d'ânes chargés de livres"

instead of donkey put in asses

i must see if i can dig up a powerpoint presentation i cam across a few years ago..some "respectable" financial guru saying "there is only one way to make money trading the ES..and that is to trade like the pro's trade"

what do you think of a donkey statement like this

oh I don't doubt that, of course there is a reason behind what happens, most of the times, it is just that I have followed a different path from 99% of traders as I have not had the usual education in trading: Technical analysis, trying all the instruments thinking that finding the "one" was the key to make money, or even better, learn everything about fundamental analisys... Instead I just looked at live charts for several years and thought my way into undestanding the little I understand about how price move.

about the financial guru, hahahah, he should have specified that you also needed the capital available to the pro's to make the money... if I had 50M$ as trading capital I could make 99.9% of my trades winners, eventually...

 

[Vindago]

you might have saved yourself some money

my last 9 or 10 or 12 trades.. i really can't remember the exact amount..were all winners..so i am in no hurry to give back any of that..but..the last one where i closed 2 short MES contracts pushed the boundary a small bit..it is a very bad habit to double up on your losers..believe me..i know..unless you have some very promising looking charts..then it really is monkey trading..and you might as well get ready to see all your nice profits evaporate with one silly mistake..so..as you say..trade what you see..not what you think..or..even better..not what you think you see

doubling down on losers... been there, done that... not anymore, please, I already left enough of my money on the table to do that. I have gone through all the usual stages of the trader life: lose some money, make a lot of money, lose more money, be too scared to trade, slowly getting back on the saddle being shy and missing many opportunities but also missing few bad trades, so I can grow the confidence to do what need doing. unfortunately, in the meantime I come to see trading as extremely boring so while I still trade I am looking for something that will make my brain work, thus I appreciate these discussion on ET