Bund Bobl Schatz Fly

novish

Newbie
9 0
I have a few more questions about the fly that I would like to ask anyone who thinks they know the answers. I think the easiest way is for me to write down what I think and then you can correct me where and if Im wrong, you disagree or have another way of looking at it.

1. The Fly tends to move up one “positive” news (Rate cuts for example)
2. It moves down on “negative” news (Rate increase)
3. If the stock market goes up the fly goes down
4. The bund follows the US 10 year, but in the fly the Bobl seems to be the driving paper
indicating where the outrights are going.

The fly has been a good trade lately, pretty stabile and predictable. Bur it moves very slow and over the last 2 months or so no more than 15-20 ticks a day.
When I go through charts of how the fly has moved in the last year or two I can see that a year ago a 40-60 tick range wasn’t that unusual. Is this because the overall markets have stabilized compared to the volatility we saw last year?

Thanks to those of you willing to spend some time explaining and correcting.
/Novish
 

amnonco

Active member
175 8
I have a few more questions about the fly that I would like to ask anyone who thinks they know the answers. I think the easiest way is for me to write down what I think and then you can correct me where and if Im wrong, you disagree or have another way of looking at it.

1. The Fly tends to move up one “positive” news (Rate cuts for example)
2. It moves down on “negative” news (Rate increase)
3. If the stock market goes up the fly goes down
4. The bund follows the US 10 year, but in the fly the Bobl seems to be the driving paper
indicating where the outrights are going.

The fly has been a good trade lately, pretty stabile and predictable. Bur it moves very slow and over the last 2 months or so no more than 15-20 ticks a day.
When I go through charts of how the fly has moved in the last year or two I can see that a year ago a 40-60 tick range wasn’t that unusual. Is this because the overall markets have stabilized compared to the volatility we saw last year?

Thanks to those of you willing to spend some time explaining and correcting.
/Novish
1+2. positive and negative are quite relative terms. fly moves up on potential (and actual) rate cuts and moves down on potential (and actual) rate hikes. by potential I mean expectations derived of macro economic data (what you call - "news")
3. any correlation that is not with other debt (which is quite trivial) is temporary. sometimes the correlation is with crude oil, sometimes with stocks. the reason behind the movement is what matters. here's 2 examples: (a) there was a recession and interest rates are very low. positive cpi figures indicates that there's positive movement in economic environment and that moves stocks higher and indicates rate hikes and thus the fly lower (like you mentioned). however, think about a time where there's sustained growth (like 2 years ago) when the cpi figures came out positive - this still means rate hikes and the fyl went down, however this time it's bad for the stock market (high alternative investment option - flight to quality).
4. it is believed that european macro economic cycles lags the US one. while there's a connection between the 2 great economies, this can change (the bund follows10 year). I don't trade the fly that much, so I can't tell you about the bobl being the driving paper, however it makes sense. long fly consists of 2 short bobl contracts (more than the others) so...

and on a trading note:
"The fly has been a good trade lately, pretty stabile and predictable"

don't try to predict the market, it's useless, as you can learn from the examples above - things can change quite drastically quite fast. you need to have a plan, because sooner or later, things will change, and you predicitions won't work. what would you do then to not lose your money?
think about it.
 

novish

Newbie
9 0
Thanks Amnonco for a very interesting and well explained answer to my questions!
I do admit that the word "predictable" in regards to the market is not the way to trade this in the long run. Youre very correct on that!
What I meant here was simply that being offside on a position today looks much "safer" than what I can see from how the fly has moved in the past. Basically, averaging in today when youre offside seems to me to be better to do when the range looks like it does today than a few months back when the fly could really take off in a non-stop, one way line up or down. And of course, this can all change by Monday morning and the fly moves in the exact opposite way it has done latley.

But I totally agree, trying to predict the market is probably the dumbest thing to do, especially at my level of experience. Im simply just trying to figure out the fundamentals which I think are crucial if you want to make this work in the long run. It would be pretty naive of me to think I can just log on and "make money" trading the fly without proper knowledge or any kind, or experience from it.
So that is what Im trying to do now, learn and observe, go through old charts and study its behaviour and link larger moves or curve changes to to specific data/events/economic data releases in order to find a pattern and clearification to why "what happens when". Im fully aware of the fact that you need a plan/strategy in order to trade these markets successfully, but as in everything else I rather have no plan and move on slowly until I know how to set up a specific plan than following a plan based on the wrong assumptions. Basically, a strategy you dont fully beleive in is pretty worthless the way I see it. So until I feel more "secure" and up to date with things I will continue to do this on a lower scale and pile up knowledge and facts about how it all works. And when I feel that I know a little more about why things are happening and moving the way they are and I notice that Im making progress because of it I´ll increase and add more aggressivness to my trades. I dont think there are any shortcuts in trading. To make money in the long run you have to know what youre doing, and why youre doing it. For this you need knowledge and experience which only time can give me.

Once again, thanks a lot for your tips and ideas! I really appreciate you taking the time to explain things and I am very greatful!

/Novish
 

Aston1st

Active member
237 22
short it?

seriously - have a plan...
For a medium term trade, 1 - 3 Days even longer that's a viable trade, generally I am looking to Day Trade.

@Novish,

The 15 - 20 tick moves are there but I have found that on a day trade it generally tends to trend within a 5-6 tick range before breaking out of a set range, you can usually see this clearly on the 5 min chart.

I have seen the fly trend in the direction of the Dax at times, although the outrights have down the oppersite.
 

novish

Newbie
9 0
agree, a typichal day lately is some movement in the first morning hours and then pretty much what you said (5-6 ticks) until late afternoon when it catch some speed and breaks out. normally around 10-12 or so ticks.

@Aston1st. "Still I too await some heavy weight answers to your intelligent questions."
Are my questions that stupid that I made you laugh or are you actually looking for the same answers?
I hope Im not making a complete fool of myself here haha
 

Martinghoul

Senior member
2,690 276
The one thing that, I think, you need to do is just try to understand the dynamics of the yield curve and what sorts of fundamental factors actually drive interest rates (there are only three). As always, I would recommend the old Solly 'Understanding the Yield Curve' series of papers.
 

novish

Newbie
9 0
Thanks! Nice to see that this forum contains so many helpful and friendly members! to all of you, thank you very much!
/novish
 

Aston1st

Active member
237 22
@Novish,

I was being serious , put downs are not my style unless provoked (Lol). I have been trading basically on the technical charts and levels, have tried to read some of the papers on Bonds then the formulas make me dizzy : 0 .

What some of the more senior members have posted I shall have a look at also. I am very interested in the Relative Value of the Fly and the general Cost of Carry for the Bonds, it seems, and I am happy to be corrected, that the Schatz's is trading at sort of in Backwardation\Premium mode. But I am not sure exactly why this affects the Fly as a whole.

Also the 5 - 6 tick range is quite dangerous as it's too easy to get legged when coming out of it. Am looking at the idea of autospreader ------- Any views out there on Auto Spreader rather than trading it on the outrights ?

Thats what I love about trading you are always learning something.