Best Thread Arabian's *serious* Thread

[HowardCohodas]

arabianights, Flight simulator - aircraft type? mission?

 

[MajorDutch]

arabian i hope you dont mind but i had idea for some people to get a bit more of an idea about order flow trading.

at the end of today some comapnies could be dropped from the FTSE 100.

What this means is that all of the "real money" funds that have a remit for FTSE tracker funds (like pension funds, unit trusts and things) will HAVE to sell their shares in the companies that are dropped. this is what a "price insensitive" trader is like, they might know its a bad time to sell but its not their money so they don't get a say*, they just have to do what they are contracted to in the t&c's of the prospectus.

so what you get is alot of people all trying to sell the same stocks (and buy the added ones), which of course makes the price go down because there is a volume / liquidity imbalance.

BUT, just because the company has been dropped from the index doesn't mean it is not the same company as it was yesterday. A few things may change like availability of capital raising but really its not that much. So, the fundamentals haven't changed, the price only falls cos of large selling, and after a while it goes back to the same valuation as it was before.

http://www2.standardandpoors.com/spf/pdf/index/070902pricechanges.pdf

now what this is like for shorter term futures traders -

1. "front running" would be selling the shares now before everyone else has done their selling. this works when you KNOW that big orders are coming and you get in before them (and later buy from them at lower price). This is very valuable info on futures markets and hard to get reliable.

2. fading the move once all of the price insensitive selling is done, because nothing has really changed in the fundamentals and it goes back to where it was before.

anyway i thought it would be nice for some of you with jobs and things to see the same idea of trading on a longer timeframe and maybe you can watch end of day or something

* actually I think the managers have a bit of discretion now, a bit like the fixes in FX but i dont know how much. and i dont trade stocks so this could all be vanished nowadays.

there were rumours in early trading that Hargreaves Lansdown are about to join the FTSE 100, so could there be an opportunity to legally 'front run' this stock ahead of the big tracker purchases??

 

[DashRiprock]

there were rumours in early trading that Hargreaves Lansdown are about to join the FTSE 100, so could there be an opportunity to legally 'front run' this stock ahead of the big tracker purchases??

The final decision will be made tonight, but those in the know (not me!) should have a good idea about which stocks are in play for both the upgrade and the downgrade.

If it were me I'd go long/short on the relevant stocks through an SBer. I won't be doing this.

http://ftalphaville.ft.com/blog/2011/03/09/508586/the-160m-ftse-100-company/

 

[DashRiprock]

http://ftalphaville.ft.com/blog/2011/03/03/503901/ftse-reshuffle-runners-and-riders/

 

[arabianights]

Look, if I can ask the question whilst smashed surely you can have the decency to answer it? unbelievable

I'll get a nice signature:

Roll up Roll up for arab's chat room, minimum 10 sure-to-win trade ideas a day, see how the pro's trade, get free sh1t sterling trade ideas, learn the three simple methods the pro's use to coin it day after day, magic beans for all!

although i'm afraid reality would fall short, all they'd get to see was how depraved most traders are, and that your trading style mostly involves scratching one lots.....

I scratched a 2 lot once, the position was too big for me

 

[Pento]

I haven't read through all the thread so apologies if this has already been asked.

Arabian, seems like a very informative thread, and one of the best in a long time on this forum. I found the short sterling trade at the start interesting.

Do you think that by telling everyone on a public forum how you trade that you will be diluting your own personal edge in the market? For instance, if a similar trading situation arises to the sterling one then from now on other T2W traders will be looking to do the same thing that you would usually do. This might mean you miss the bid as the whole T2W community has sold it a second before you could. Extreme I know that we all sell 10,000 lots in one go before you.

 

[arabianights]

I haven't read through all the thread so apologies if this has already been asked.

Arabian, seems like a very informative thread, and one of the best in a long time on this forum. I found the short sterling trade at the start interesting.

Do you think that by telling everyone on a public forum how you trade that you will be diluting your own personal edge in the market? For instance, if a similar trading situation arises to the sterling one then from now on other T2W traders will be looking to do the same thing that you would usually do. This might mean you miss the bid as the whole T2W community has sold it a second before you could. Extreme I know that we all sell 10,000 lots in one go before you.

In this particular case, absolutely not. There are certain things that I will not post as the edge IS subtle and I wouldn't want it taken from me. This isn't one of those cases.

I'm glad this thread is helpful to you. More to follow

 

[DashRiprock]

I haven't read through all the thread so apologies if this has already been asked.

Arabian, seems like a very informative thread, and one of the best in a long time on this forum. I found the short sterling trade at the start interesting.

Do you think that by telling everyone on a public forum how you trade that you will be diluting your own personal edge in the market? For instance, if a similar trading situation arises to the sterling one then from now on other T2W traders will be looking to do the same thing that you would usually do. This might mean you miss the bid as the whole T2W community has sold it a second before you could. Extreme I know that we all sell 10,000 lots in one go before you.

ssssssshhhh!!! front running arabian is MY strategy!


OK time for a serious question

If you are looking at, say, 4 consecutive expiries in each ccy (maybe 2 whites and 2 reds, whatever) thats 12 dom/t&s you have to be looking at, plus 3 matrices. thats alot to be looking at I think,

so,

do you have any automated alerts set up? for things like big trade sizes, highs/lows, prev days highs/lows, any unusual size in the DOM, anything like that?

of these, the volume one is obviously pertinant, anmd so going on from that...

do you look at the volume going through the spreads as well?

and

do you filter the tape by trade size?

 

[arabianights]

Trading the front month near expiry

And here's an example of a different strategy. This startegy is really a "no brainer"; some may even think I'm insulting their intelligence for including it! But it's a bit of variety

I said earlier in the thread that anyone who doesn't understand what a STIR is should go and look it up. I trust that you all have done if you've got this far. And so you understand that, say, euribor futures for example are eventually settled at 100 - 3 month euribor on the day that they come off.

Now the thing is, said 3 month euribor fix (and this generalises to other contracts, but for simplicity I will talk about euribor fixes from now on) has two properties. Firstly, it is mostly non volatile (exceptions are during inter-bank credit quality worries or great interest rate uncertainty) and it trends fairly well.

This means that as the last few days of the contract's life come along, there are opportunities in trading off each day's fix itself, as an indicator of fixes to come.

There have been particular opportunities this month. At last week's ECB meeting, Trichet signal rate hikes to come - and so 3 month euribor jumped from 1.098 on the Thursday morning to 1.162 on the Friday morning.

So a quick digression - here's an unsuccessful trade I made on Friday. Initial calls from contacts in cash market were for the fix to be somewhere between 1.17 and 1.18, so when that figure came out I bought 785s in March (corresponding to a rate of 1.215 on expiry), assuming that that figure was better than the market feared. Unfortunately, I lost money. What I had failed to take into account - or more accurately had taken into account, but incorrectly - was the heavy buying of the contract all through the morning at better prices. I assumed that this would continue. Instead, the buyer took the opportunity to have saps like myself let him out (possibly; all I know is someone sold all the 785s they could and the market then came off again)

That was Friday. I'll ignore Monday as it's not too exciting and the technique used then is essentially what I'm doing now... let's take a look at Tuesday. Monday's fix was 1.180 and the call was for a fix around 1.186; the market was 790@795 (like an option, there is time value in these things [heck, Fisher Black's last paper was how interest rates resemble options])

Anyway, the fix came out at 1.179 (a fix, as a future, of 821) and I was fortunate to be quick enough to lift 795s on it... I was out of half of them at 805 very quickly, and over the course of the day sold out some of the rest at 810... I ran a few overnight to today. And today, more or less the same thing happened. The fix came in as 1.175... I lifted 815s on this... however as it would be illogical for the market to be trading 825 I only took half a tick on them.

So that's two nice big chunky trades. What am I doing now, and indeed what have I been doing, on front month since then? (I don't just trade front month, of course, nor just Euribor, but again I'll focus on it)

Well the fix is 825 as a future, but again there is time value and no guarantee fix will be down again tomorrow. I would normally expect it up a bit tomorrow, actually, as it tries to find fair value... but I have reasons for thinking otherwise that I will not detail here. Anyway, 820 is pretty much fair value at the moment.

So my strategy for the rest of the day has been very simple. I've sat on the 815 bid, and the 825, both in reasonably decent size. And I've managed to buy the bid and sell the offer a few times... not anything like the size I'm putting in - it's been about 1/30th of it - but it all adds up. If I get any fills, I don't faff around hoping to get them on the other bid or offer - I spin them out at 820 as soon as possible. This way I'm not stuck with an irritating imbalance... and the fees for what later turn out to be "unnecessary" round trips at 820 are effectively negligible.

Tomorrow, once the fix is in (I would say the number itself is unlikely to be tradeable UNLESS the 825s are bid and it comes in higher) we should have a very good idea of where it's coming in on Monday. At that point, I will stick in GTCs on appropriate bids and offers and do nothing other than ensure I have a sensible risk over the weekend. On Monday, even easier

Anyway that's a front month STIR in the last few days before expiry. Not going to make you rich but not to be sniffed at either!

 

[arabianights]

OK time for a serious question

If you are looking at, say, 4 consecutive expiries in each ccy (maybe 2 whites and 2 reds, whatever) thats 12 dom/t&s you have to be looking at, plus 3 matrices. thats alot to be looking at I think,

Yes, it is! I don't bother with a matrix though... Although to answer your question below I do pay attention to some of the stuff going on in the spreads.

And of course I'm watching other markets, news flow, chatrooms, trolling t2w... I am busy

do you have any automated alerts set up? for things like big trade sizes,

Yes

highs/lows,

Yes

prev days highs/lows,

No

any unusual size in the DOM, anything like that?

Sometimes

do you look at the volume going through the spreads as well?

As above

do you filter the tape by trade size?

I keep track of all large size orders in one place. Each individual ladder, no

 

[DashRiprock]

good job arabian x 2

 

[Martinghoul]

Cap'n, I think you should write a bit about the risks inherent in your strategies; both the fixing and the mkt-making of the front contract. I think it's necessary for people to realize that you're a trained professional and they shouldn't try this at home without understanding the dynamics of the mkt.

 

[arabianights]

Cap'n, I think you should write a bit about the risks inherent in your strategies; both the fixing and the mkt-making of the front contract. I think it's necessary for people to realize that you're a trained professional and they shouldn't try this at home.

That's what I have my sig for!

However, just a brief overview...

Ok, firstly fix can (a) hypothetically be anything and (b) is manipulated by *******s in bank money market desks. This means that while my description is a pretty good description of my thought processes, at the back of my mind I'm bearing in mind that this is game theory... unusual orders normally spark trouble and you shouldn't commit your entire account on a basis point!

I don't think there's anything in particular to add to that on the market making comment other than to again point out if you get filled at a price that seems stupid... well it probably isn't stupid. Something's going on!

I humbly disagree with Mr Ghoul that readers shouldn't necessarily try this at home though. Given a decent round trip cost I say go for it, just familiarise yourself with risks.

 

[Martinghoul]

I humbly disagree with Mr Ghoul that readers shouldn't necessarily try this at home though. Given a decent round trip cost I say go for it, just familiarise yourself with risks.

We're in agreement on this. I just meant that people should have some understanding of what this is about before trying.

 

[arabianights]

At this point I am both drunk and lazy... so will be up only just for fix from look sopf things!

 

[mapuata]

Just out of interest, where do you get the information from about where 'the market' expects the fix to be? In case it isn't a mate at a bank...

 

[Hotch]

bumpity bump, pwease pretty pwease with a cherry on top Mr nights!

 

[arabianights]

Just out of interest, where do you get the information from about where 'the market' expects the fix to be? In case it isn't a mate at a bank...

It partly makes at banks, partly sources like ITC, partly watching the market and having a decent idea what it's trading like.

 

[arabianights]

bumpity bump, pwease pretty pwease with a cherry on top Mr nights!

well... I have an overnight but it's not very exciting.

Let's hope the BOE minutes are interesting - I may have a SS trade to write up

 

[kimo'sabby]

So what's happening now? We've had the spiel and jargon...any forcasts for the future? Or is it a case of, 'don't bother trying this at home'?