Apr 232010

I guess we had it right this morning. That 3.25 level ended up being quite tricky though and we had to be really nimble changing our minds more than once . I scalped the first push as usual for a tick then it took me a while to decide if I was going to fade it. I finally did but wasn’t comfortable trading past 4.50 as it just wasn’t acting right. NJ wanted 5.50 but it stalled on him and he came out at 4.50 also. I dropped the target with my order and it went right there immediately. He had to sweat it out a bit. We both felt that if it pushed down again it wouldn’t hold so we each parked sell stops at 2.75 and traded into the then edge of value and cluster center at 1.75 – which has also been a really key level for the last few days. Volume is pretty light so we are probably done for the day. I would sell under 1200 into 98.50 or 97.50 if it came up though. BTW, I forgot to mention pre-market that there was HUGE, HUGE, HUGE sell programs initiated into the cash close yesterday. It pushed the premium down to under -8 and with the big rally yesterday the programs got great prices up there for shorts. All eyes on 1200 again and if it breaks, back to 97.50 we go…

 Posted by at 9:58 am

  6 Responses to “4/23/2010 Post Trading Analysis”

  1. After the housing number I tried a fade of the 7.50 level, getting in short at 7.00..I wasnt quick enough to get the ticks down to 6.50 and 6.25 so when it popped back to 7.50 it was clear to me it was probably going higher. I covered for a 2 tick loss.

    • Try and pay more attention to our commentary and it will help you. You will note that we didn’t have that level today for a fade. It has been hit too many times and has been too key for too long. Volatility is too high around levels like that which is why we said to only scalp the vol if you trade it at all. The top two – 9.50 and 10.50 were the ones to focus on today. We were done by then though.

  2. When you say there was huge selling on the cash market by programs are you referring to the hedging process when the premium between futures and cash reaches a certain amount it triggers automatic selling in the cash market and also buying in the futures. Is that what caused the massive spike up last night. If so does that mean the price rise was a purely technical adjustment and not a bullish sign?

    • Yes. Exactly. Though the spike up was not entirely artificial. Program selling and buying is 100% mechanical. We have levels each day against fixed fair value. NEVER look at or trust moving FV like they talk about on CNBC every day. No such thing. FV each day is fixed and doesn’t change all day as far as the programs are concerned. Today’s FV is -3.56 with buy programs at roughly -2.46 and sells at roughly -4.67.

  3. I have found this website http://www.indexarb.com/ , is this where you get the daily values from? Can you trade this information, is there a running premium alert so that when it gets to buy or sell triggers you can get in or out as the case may be?

    • No. The indexarb.com numbers are OK but we get our levels from a private program desk that are market makers for GSCO, MLCO, & FBCO. You can’t trade anything discretionary from them, only automated stuff and then only very complex index arbitrage strategies. The largest part of our business is algorithmic trading actually. You can use FV calculatons as a filter, mostly to fade moves for scalping ticks though, which you need to have good chops for alone first. Programs are about sustaining pressure at those levels. For the intraday trader it is better to capture volatility with the arbs closing the gaps, not trying to follow the programs in the cash. Those need to be anticipated using a lot of inside knowledge and data which is hard to get. You need to crunch numbers and guess ahead of time WHEN programs will kick in mostly through crunching dividend and sector data. We have access to it, but to be honest we find that we make just as much or more by just feeling it and trading common sense. In 20 years we have never found a shortcut to that. A big part of the first webinar will be pointing out that filtering or otherwise using “inside” info isn’t worth much intraday as index arbitrage bullies away all the inefficiencies. You just have to make educated bets and manage your stack. Like Vegas, except with way better odds on every bet and no house advantage if you know how to erase it with your risk model. We see intraday trading like playing cards against a lot of weak players. They draw out on us some times, but in the end they always bluff at the wrong pot and we take them down. Our trading is all about order flow and human emotion. Recognizing greed and fear of others and knowing how to capitalize on it. Play the man, not the cards as they say…

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