Eurodollar Madness

[TWI]

Liffe connect publishes the spreads and outrights which then get interpreted by the software accessing the Liffe API. The end result being the best price available at that time. I will always see the best price on any spread but two volumes for each price one being actual and one being implied. I colour code the prices depending on whether there is only actual, only implied, a mixture of both or implied on implieds. It is never a good idea to lean on implieds.
Any of the Liffe software vendor products will show these.
Continuous contracts are not possible but there is a lot of data on any particular spread as for example Mar/Jun06 is already reasonably liquid.
BBB, the market is far to efficient to be able to trade the spread and make a tick by legging outrights, more likely you lift the wrong leg first in the outrights and lose a tick. If the outrights are trading at or better than the spread, the spread product will be trading out.
As for ED trade, haven't had a look at that but certainly in Euribor the EDM4-EDM5 vs EDM5-EDM6 fly looks like and interesting buy, the reds are rather overvalued right now.

 

[BBB]

Thanks - all adds to the learning curve!!! In fairness though I think it would be unwise for me to trade spreads for ticks intraday given my set up/environment. My spreads will be for a few days/weeks while I carry on day trading as it pleases.

I take it any I- ED fly you take would have to be the LIFFE ED to take advantage of margin? If not, and you trade the ED on Globex, would I be right in saying that the EAGLE/GLOBEX will only show the implied? From the limited background stuff I've done so far, this would appear to be the case.

 

[TWI]

I do not know anything much about Globex or how their spreads work but would be interested to see if, due to inefficiency and illiquidity of Liffes new ED contract if arbs ever appear in any outright or spread between the two markets. Since the contracts are fungible if you can ever score a tick it is free money. Bet the autospreaders are already hooked in so probably will not be possible but you never know, make point to look this week and subscribe to some real-time globex prices.

 

[BBB]

eCBOT may we worth a look. They use the connect platform, and so should allow implieds on US and Jerry fixed income products - interesting flys?? I expect liquidity on the German legs wont be that great though.

 

[BBB]

Well the EDm4-m5 is still going strong.....

There have been a few chances to add to the spread as well over the last few weeks.

 

[PeterTT]

I would be tempted to cover the edm4 ag edm5 spread now as Tbond is looking better bid after Bernankes comments

Peter

 

[BBB]

One to watch Peter for sure. However the trend is still in place when I looked yesterday, so wouldn't look to take money off the table until the fat fat lady sings.

However, taking some profit earlier on (or now given your info) by selling some of the spreads would have been a good strategy.

As a point of interest, the 15 min spread also seems to behave quite well. Given that there are 40 back months of liquidity in the ED (GE) there's always going to be some money to be made here....

Of course, all this is just idle speculation. I've yet to pull my finger out and do some thing about it as Im doing ok elsewhere at the mo....

....like askj!!! I love it when a plan comes together.... Already locked in a nice profit to boot. hehehehe

 

[BBB]

Here's One I Made Earlier

Thought I'd post a quick overview of a ED spread entered yesterday. Ive posted the weekly and daily charts below of ED h05-z04. To be honest, m05-z04 would have been a better trade, but no entry was available (missed by a few days). I'm probably a bit too late in the party on this one, but we'll see how it goes.....

Looking at the weekly charts you will see the excellent trends Eurodollar spreads often make. The daily charts I use to find an entry - usually based on a pull back or minor consolidation. As the daily chart shows - you see a classic downtrend, followed by a trading range with the spread showing a propensity for accumilation (rising bottoms). This was followed by an explosive breakout and a major pull back - ready for the trend to mature into what we see now.

Basic TA principals work just as well on a spread chart as they do for outright positions - if not easier and more reliable due to the nature of what a spread is - its probably harder to manipulate a spread - especially in Eurodollar. The downside being that you have no volume or bar charts (unless you look at the outrights)

I entered yesterday on the open at -0.26. My mental stop was -0.285. At $25 per tick, thats only $62.5 risk per spread. Initial margin for this is only $203, maintenance being $150. Peanuts!

I've entered what would have been better entry points on the daily chart

Even a newbie with a $5000k account could go in with 10 spreads and sleep at night.

I planned to cover 1/3 of my position at -0.24 which was achieved yesterday also. I have now moved my mental stop/alert to my entry point (-0.26) having taken some money off the table and eliminated (as close as) initial risk.

With the rest of my position:
1/3 will be trailed on the daily charts at natural support resistance points
remaining 1/3 will be kept at the entry point until the weekly chart develops a natural support point - although I will reassess the position in early Dec - if I'm still in - to decide if I should roll over or not.

Yes! I'm in this for the long term! As the margin requirement is so low, it wont affect my day trading margin requirements at all.

The trade wont make me rich - but it will pay for a nice holiday

Again - not the best Eurodollar spread - but the best available yesterday. I can always close or reduce the position when a better spread comes my way.


Any comments?

 

[TWI]

Think your fate will be decided by Fridays non-farm report.

 

[BBB]

Think your fate will be decided by Fridays non-farm report.

LOL!!! you could be right It could make me rich - it could make me poor - it may make little difference as its only a 3 monther - so the correlation should be tight - you never know though do you!!

 

[BBB]

Stopped out on Thursday for my remaining 2/3. Intraday price action hit -0.26, but managed to get out just after at -0.255 on a limit. One advantage of the interest rate futures is that they stay relatively rangebound for some time compared to say an index contract or a share. This means that if your stop/alert is hit you have the choice of trying to be brave and salvage half a tick or so. If you don't get filled relatively quickly, take the safe option and take the original stop price.

The result is a small profit after costs. Not great, but I didnt lose either. The NFP number on Friday took the spread down some more, so there is a possible new entry at -0.24. If price rallies but doesnt make this high before reversing again, then taking the other side of the spread by buying z04-h05 (the last trade was h05-z04) would be a possibility - unless there are better opportunities on the curve.

We will see.

If anyone is reading this - especially a newbie - you may want to pay attention to how I managed the trade. Although I would now be underwater had I stayed in with my entire position, I came out with a small profit by taking some money while it was there, and eliminated (as best I could) the initial risk. Knowing how, when and where to take this money off the table is dependant on several factors. Difficult to explain how to do this properly on a bb.

 

[zeeuk]

Do you guys know of any good books on EDs. Need to do some research b4 I trade - only know of guys who traded them in pit, and don't think they're any good on intra-day.

Looking at volumes and movement on screen, beginning to think otherwise. Any ideas? Need to get aquainted with fundamentals.

 

[TWI]

I have been scalping spreads on CME ED for a while. They are OK but was only trying it out as the LIFFE STIRS were so dead in Jul/August.
Since start of Sep I haven't yet done a trade. I think I will wait until it goes fully electronic before really getting involved with scalping. As for the LIFFE contract, the volumes are too low IMO, would be btter time spent on Euribor or Sterling.

 

[zeeuk]

Thanks for the advice. I trade Eurex bonds, looking to diversify. Don't really like t-bonds, thought I'd look at EDs. Don't trade Euribor or SS. Will sit tight until I've learnt enough.

 

[zeeuk]

thanks 13, will check it out.

 

[Carley1]

I trade Eurodollar spreads based on seasonality and market momentum

Eurodollar spreads are the best kept investment secret out there. Although the ED market is the most liquid in the world, many futures traders take short term rate instruments for granted and fail to manage their risk.

If you would like to paper trade these spreads in the past, I can mail you a trial version of Track and Trade softwar in which you can go back as far as 20 years to paper trade historical markets.

Trading the spread by legs works to your benefit, it gives you the ability to adjust.


Carley

I've been looking at the Eurodollar spreads recently.

I've got some more work to do in my 'feasibility' stage as to the workings etc before it becomes part of my arsenal, but there seems to be good money to be made here with not too much vol on the spread (hey whats new), easy trends, low margin requirements, blah blah blah, if I hold for a week or two.

I'm the first to admit that this research is based on hindsight, and my broker wont let me trade histories etc, but I've got to start somewhere!!


Can I spread any month off against the front month and trade it as a 'product' rather than legs?

(Get lost BBB, go do your own work on www.cme.com)

Any experiences of Eurodollar spreads much appreciated.....

 

[jmreeve]

Carley-
What seasonal strategy do you use?

 

[TWI]

Eurodollar spreads are the best kept investment secret out there

Is this like some sort of secret society where you need to bear a test*cle or something like that in order to gain entry ?

 

[Carley1]

I gather seasonal information from a few sources. I first identify any seasonal ED spreads as recommended by seasonal services. I also use charting software that includes contract seasonalilty. For example from the middled of Aug to mid Oct. ED's typically form a bullish pattern. Knowing this I bought a September '05 and sold a December '04 ED, it was meant to be a long term trade, but I have gotten in and out for special events such as Fed meetings.

If you would like a trial version of the software I was referring to, email me your full name and mailing address and I will get a copy to you immediately. By the way I am not in the business of selling software, but I aim to educate.

Carley-
What seasonal strategy do you use?

 

[Carley1]

Definately not, but I have seen to many people implement a "get rich quick" trading strategy and lose it all. Why not play it safe...you may not get rich but the returns beat that of the stock market and you can sleep at night.

Is this like some sort of secret society where you need to bear a test*cle or something like that in order to gain entry ?