Shatz/Euribor spread

Hey NLT!!

I have been trading the Shatz/Euribor for about 6 months as well, with mixed results (although i had never traded before so it has been a learning curve).

As for the 5000 going through in the euribor....sometimes if im quick enough i can quickly hit market on the schatz whatever side the 5000 went through and be onside 1/2 a tick, or at least able to scratch it...worst case scenario.

Today its trading nicely in my opinion...ranging nicely, hope im on the right side of the next big move.
 
I'm still a trainee so to minimise the risk they have only given me one spread to master (they assume im going to lose in the first 6 months ha so true).

I have spent many months looking at FTSE/STOXX, FTSE/CAC, GILT/BUND, TNOTE/BUND.
 
oops caps lock was on, i like the cac vs eurostoxx the shatz i just cannot get my head around the half tick mvmt for 5 euro its tough to make money after paying 2 side commission each side to get in and 2 on th way out
 
Alexxxx, why don't you trade the Euribor further out (e.g. Sep 06 or even further)?
You benefit because the liquidity is lower, meaning that the pro rata rule does not penalise your small size so much. Also, fewer people trade this, making opportunities easier to capture. Volatility is higher, so your commissions are less of a burden. You need to interpolate Schatz - Bobl to get idea of fair value.
 
sep 2006 with shatz sounds hard to trade to me. there are almost no dumb orders or panic ones. And this are the type of order you need for this spread imo. Dec2005 is the place to be I think..

Or do you have experience with the other spread wich is good?
 
What you call dumb orders or panic ones only make you 0.5c, which presumably is not much more than your commission + other costs. Plus there are so many other people trying to capture the same thing.
Dec 2005 v Schatz is normally a very directional spread. I agree with others who have hinted at this. i.e. you might as well just go long or short and not worry about trading the spread.
Although there are fewer players paying bid-offer spread in the back Euribors, there are similarly fewer players trying to play the spreads, and they are more volatile, which is the problem with the 2005 euribors.
I must admit that I have not spent much time trading the front euribors so maybe I am missing what you see as benefits, but personally I want to trade something that moves and that isn't overtraded.
 
Good morning.

I have looked at the Euribor further out and yes it is more volatile but only by max 1/2 a tick more (on a slow day - althought that helps when trying to keep up with the Schatz). However, you do have a point when it comes to the costs.

I hope one day to start trading between euribor months but I would need much more size...at least 40 lots i believe.

Last week I got bigger size 25 (Schatz) by 10 (Euribor)....moving up in the world!!!

What ratio do you guys use when spreading the Schatz/Euribor? I usually have 5 times as many Schatz as Euribor (in other words, never hedging perfectly since a perfect hedge would be about 2.5 times)....I find it that if its going to go your way in the spread, the last thing you want is to have to take a substantial loss on the euribor (maybe thats greed in my part). I also try to work both sides, ie taking my profit on the Schatz and legging the Euribor hoping for some retracement...works very well sometimes and cuts down on costs considerably.
 
I use 4 Euribor vs. 5 Schatz.
Also there is a big difference dependent on which Euribor contract you use. Some are far more rangebound than others. The temptation is to move further down the curve to get away from the silly Euribor volumes but then the risk is considerably higher also.
 
5 Schatz per Euribor contract seems a funny way of trading the spread. The ratio of 5:4 is much closer to what it should be if you want to attempt to take out the directionality.
Schatz has tick value of 10 EUR (forget about 1/2 ticks). Its pv01 is approx 2 so for every 1 basis point movement in yields, it will move by 2 cents, giving you 20 EUR per contract.
Euribor has a higher nominal (250k instead of 100k) and so has the higher tick value of 25 EUR. 1 basis point movement in yields therefore gives you 25 EUR per contact.
So, if the yield volatility of the euribor is the same as the schatz, you should trade 5:4. Otherwise, your p&l more or less determined solely by what happens to your schatz leg. What it sounds like you do is to use the euribors as a guide for directional punts on the schatz - this is not necessarily a bad strategy because the volatility of the yield spread is very small while the outright volatility is considerably higher and possibly more condusive to scalping.

If you want to trade the pure spread between schatz (or bobl) and the euribors, you shouldn't however blindly trade the ratio 5:4. This is because the yield volatility varies for different parts of the curve. As you know, the front euribors tend not to be as volatile as the back months. There are no particular rules as the relative volatilities vary according to what is driving the market (e.g. when we get closer to ECB moving rates, the front months may well become more volatile than the back months). However, the relationships remain fairly stable for periods of time so you should just test them for the last week or so.
 
HCAS said:
cas 54 , what is pv01?
Click to expand...

Means price value of 1 basis point. dv01 is also used (dollar value of 1 bp). It is a measurement of duration, relating yield changes to changes in price.
 
Do you try to scalp both or do you scalp one and use the other to minimize directional exposure of the combined position?

twalker said:
I use 4 Euribor vs. 5 Schatz.
Also there is a big difference dependent on which Euribor contract you use. Some are far more rangebound than others. The temptation is to move further down the curve to get away from the silly Euribor volumes but then the risk is considerably higher also.
Click to expand...
 
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