Trading the E-mini

[tar]

So where was the arb supercomputer when liquidity levels on ES dropped greatly to allow a 3SD price movement (and back) in a day? Vix was asleep because the people who buy Vix didn't think today's move was serious but it did provide a very lucrative trading opportunity for those who can spot this kind of anomaly. There were 2m contracts traded today vs 1.6m on sleepy friday and those that saw an opportunity to take advantage of a mispricing did....

arb shmarb



<I thank you>

No VIX was asleep because markets were closed , VIX closed at 11.30 Friday and reopened @ 13.47 finishing the day @ 13.36 . Lets take VIXH3 closed Friday @ 12.55 reopened at 13.35 finishing at 13.68 high around 14.10 . I wouldnt call that an arb or misspricing just another normal day in the VIX , so did you buy it ?

 

[robster970]

No VIX was asleep because markets were closed , VIX closed at 11.30 Friday and reopened @ 13.47 finishing the day @ 13.36 . Lets take VIXH3 closed Friday @ 12.55 reopened at 13.35 finishing at 13.68 high around 14.10 . I wouldnt call that an arb or misspricing just another normal day in the VIX , so did you buy it ?

Are we agreeing again here?

We must stop this agreeing whilst seemingly trying to look like we are disagreeing

The anomaly I am speaking of (for the avoidance of doubt) is:

1. Change of pace on ES and 'worrying' sell- off, supported by the market thinning out by all accounts (Pedro)
2. VIX not moving
3. People realising ES was mispriced down at 1330 and it should really be back around 1350

One last point though looking at the hourly tonight - it has failed to make it back into the value area it was trading in - this seems to have been rejected, so I wouldn't be surprised now to see lower-highs and lower-lows until value is found.

 

[tar]

Are we agreeing again here?

We must stop this agreeing whilst seemingly trying to look like we are disagreeing

i will stick with agree to disagree

 

[DionysusToast]

Interesting discussion.

The volatility of the ES can change day by day. You can have a tight range followed by a wide range. This is pretty common and most day traders have some way to assess what sort of day is unfolding (if they don't, they should).

On some days, we can have a 10 point range that feels quite 'swingy' because it moves up and down that 10 point range 3 or 4 times in the day. On other days we can have a 9 point range that feels dead because we get a 4 point range in the AM, then a burst up through lunch and then a 4 point range in the PM. The two days are very different in terms of intraday volatility/opportunity but in terms of days range - not much different.

Neither options pricing nor VIX is really geared up to keeping up with these day to day fluctuations, I think we can all agree on that.

Yesterday we saw decent volatility but I suspect that today (it's 00:15am EST as I write this) we may return to the malaise. There's a few things that will impact this.

1 - We are back into the range where we had a lot of 2-sided trading and it MIGHT continue
2 - On the other hand, with Cyprus/Europe over our heads, it is possible that liquidity providers generally look to ease off a little because we are now at a time with increased news risk.

It could go either way to be honest. Whichever it does, I don't think the VIX OR options prices are reactive enough or even intended to capture the differences I (and I suspect Rob) am talking about.

It is risk, driven by fundamentals that is causing the shift to more volatility if it occurs.

 

[tar]

"2. VIX not moving"

Ofcourse it wasn't the market was closed and when it opens VIX will open with a big gap , anyway the VIX is not tradeable , you have to trade VIX futures which is already higher than the current VIX . And VIX options reflects VIX futures prices .

Just my 2 cents .

 

[robster970]

"2. VIX not moving"

Ofcourse it wasn't the market was closed and when it opens VIX will open with a big gap , anyway the VIX is not tradeable , you have to trade VIX futures which is already higher than the current VIX . And VIX options reflects VIX futures prices .

Just my 2 cents .

I know VIX doesn't move (and is only tradeable as a future) at the weekend tar but a move from 11.20 to 13.xx is hardly a move of significance - that's what I meant. I know you marked this up as a 15% increase but 11-13 is a low, low, low level of vol.

 

[Shakone]

Interesting discussion.

The volatility of the ES can change day by day. You can have a tight range followed by a wide range. This is pretty common and most day traders have some way to assess what sort of day is unfolding (if they don't, they should).

On some days, we can have a 10 point range that feels quite 'swingy' because it moves up and down that 10 point range 3 or 4 times in the day. On other days we can have a 9 point range that feels dead because we get a 4 point range in the AM, then a burst up through lunch and then a 4 point range in the PM. The two days are very different in terms of intraday volatility/opportunity but in terms of days range - not much different.

Neither options pricing nor VIX is really geared up to keeping up with these day to day fluctuations, I think we can all agree on that.

Yesterday we saw decent volatility but I suspect that today (it's 00:15am EST as I write this) we may return to the malaise. There's a few things that will impact this.

1 - We are back into the range where we had a lot of 2-sided trading and it MIGHT continue
2 - On the other hand, with Cyprus/Europe over our heads, it is possible that liquidity providers generally look to ease off a little because we are now at a time with increased news risk.

It could go either way to be honest. Whichever it does, I don't think the VIX OR options prices are reactive enough or even intended to capture the differences I (and I suspect Rob) am talking about.

It is risk, driven by fundamentals that is causing the shift to more volatility if it occurs.

Not so sure about that on options. They are instruments traded in their own right. They aren't mathematical equations determined by a lagging vol. It's not unfeasible that you see unusual activity in options before you see it elsewhere and vice versa.

 

[DionysusToast]

19th March

No intraday news

Whilst we had Cyprus news up the volatility a little yesterday, we are back up into the area where volatility had died off last week. Bit of a coin toss how this will play out. We could retain the volatility if people are averse to the additional European news risk or we could grind again.

Overnight action all within yesterday’s value area and centered around yesterdays close. Yesterday’s value area is the first thing to watch.

Yesterdays range 1529.50 (globex) /1537.75 -> 1552.50
Yesterdays value 1544.75 -> 1550.75
Globex Low 1545.25 -> 1551
Yesterdays Close – 1546.75

Last weeks VAH 1552.50
Weekly R1 1561.25
High at 1558.75

 

[robster970]

Looks like rejected by 51 value area again whilst quickly logging in before going for a cheeky pint.

 

[robster970]

Wow looks like I have missed a good day - strong rejection off 51 short for a nice ride down

 

[SuddenDeath]

"2. VIX not moving"

Ofcourse it wasn't the market was closed and when it opens VIX will open with a big gap , anyway the VIX is not tradeable , you have to trade VIX futures which is already higher than the current VIX . And VIX options reflects VIX futures prices .

Just my 2 cents .

Misconceptions of the VIX
Misconceptions of the VIX - YouTube

 

[cablemonster]

I dont trade the ES but I had a long dialogue with a salaried ES prop trader about a year ago. Anyways he was talking about this simple complimentary strat he used every day. The basis of it was he opened up his xtrader before the US open and placed a buy and sell order each side of the market but like 30 ticks away. What he said was he left those orders open throught the day and waited for price to approach. When price arrived at his level he was hit instantly as he was 1st in the queue. He would then enter a limit order for 1 tick profit and wait to be filled. If it looked like his level would pop he would just hit out and scratch the trade. On a 50 lot he was making $625 on 1 tick profit.

I guess the downside would be if there was a spike.

Anyone fancy trying it?

 

[DionysusToast]

Did he walk a bit funny by any chance?

 

[robster970]

I dont trade the ES but I had a long dialogue with a salaried ES prop trader about a year ago. Anyways he was talking about this simple complimentary strat he used every day. The basis of it was he opened up his xtrader before the US open and placed a buy and sell order each side of the market but like 30 ticks away. What he said was he left those orders open throught the day and waited for price to approach. When price arrived at his level he was hit instantly as he was 1st in the queue. He would then enter a limit order for 1 tick profit and wait to be filled. If it looked like his level would pop he would just hit out and scratch the trade. On a 50 lot he was making $625 on 1 tick profit.

I guess the downside would be if there was a spike.

Anyone fancy trying it?

I can see why that would work. I will give it a go on sim and publish the results.

Incidentally, which shop was he working at?

 

[robster970]

An observation - put and call implied vol has now risen to 13% demonstrating a lag by comparison to the observation of market change of pace from Sunday night - IVolatility.com - Services & Tools -> Analysis Services -> Basic/Advanced Options -> Basic Options

 

[DionysusToast]

I can see why that would work. I will give it a go on sim and publish the results.

Incidentally, which shop was he working at?

Errrrr - SIM won't actually give you a realistic view of your position in the queue.

Throw a bl00dy contract at it you tight ar$e.

It's pretty low risk - you can always pull the order if it looks like you will plough through the area. Then just cut & run if the depth gets a bit low after your fill.

I think FESX would be a better instrument to do it - or some of the treasuries for a retailer 'cause of the commissions...

 

[cablemonster]

Errrrr - SIM won't actually give you a realistic view of your position in the queue.

Throw a bl00dy contract at it you tight ar$e.

It's pretty low risk - you can always pull the order if it looks like you will plough through the area. Then just cut & run if the depth gets a bit low after your fill.

I think FESX would be a better instrument to do it - or some of the treasuries for a retailer 'cause of the commissions...

Funny you should say that as I was thinking FESX too, very thick tick.

 

[cablemonster]

I can see why that would work. I will give it a go on sim and publish the results.

Incidentally, which shop was he working at?

Would need to be live mate SIM wont work as not genuine fifo fills. He wouldnt give me the name of the shop but he was chicago based. He was saying there were about 5 very large traders in the ES and they were known to each other.

Post up your result if you try it. The problem is I guess it will work until it doesn't!

 

[robster970]

Would need to be live mate SIM wont work as not genuine fifo fills. He wouldnt give me the name of the shop but he was chicago based. He was saying there were about 5 very large traders in the ES and they were known to each other.

Post up your result if you try it. The problem is I guess it will work until it doesn't!

I don't really have much to lose on 1 lot really do I

Interesting about the ES trader closed group - this is not the first time I have heard this.

 

[cablemonster]

I don't really have much to lose on 1 lot really do I

Interesting about the ES trader closed group - this is not the first time I have heard this.

well you could lose a few ticks if it spikes! the thing is as DT points out what you will be looking for is a nice clean approach to the level where you are sitting 1st in the queue, if it approached and data was imminent I would close it. This guy was doing it with a 100 lot 5 or 6 times a day.

he didnt suggest to me it was a closed group just that they knew of each other. I think one of them was called 'Igor'.

I just checked my emails from when we were in touch and he puts the orders in 6am chicago time, 20 ticks away from the inside price. He has a position limit of 2000 lots but uses this to spread orders to get good queue positions later in the day. The maximum one off trade he made were 500 clips. He used to work at Jump trading but moved to a smaller outfit. usually trades 50/100/200 clips. He said the biggest trader at Jump had a position limit of 20,000 lots. Of course his trading costs were wafer thin, his RT cost was 24c. The firm was a member of the exchange, maximum volume discount applied, I think some of these prop firms based in chicago even negotiate lower rates still. Makes a big difference when your average winner is 1 to 1.5 ticks.