This spread is now on the radar but waiting to see thing settle down a bit in Texas. So will be ready to act when refiners come back on line or if we push to a crazy extreme
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I am still waiting for this set up to kick in, as you can see going to early would have been not good.
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we are seeing our first signs of this set up, but based on BPR I will work on the middle part of the trade, so will see how early next week looks if today finishes red before even trying to find a spot
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to bad today does not have cash market support, but now we have our set up to take this play shorting this spread anywhere inside the price put in on Friday is fine, obviously the higher up the better. The top of this move could be used as a stop, and probably should because the supply disruption is still not know and the eastern side of the country is in threat of a new hurricane. Often these spreads are a low risk trade this one is NOT low risk.
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Additional note, the exchange is pricing in greater risk also, day of Havey this spread took $800 on buying power today my broker wants $2,800 to put this trade on. So the attractiveness is diminishing
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I am sure many do not know how to place these trade and what my charts really mean, I am willing to have a discussion on how they work, just comment back so I know there is interest. It has always amazed me how few questions these pairs trade get
What's the widest these spreads have gone that you've seen? What's usually the mean level?
alleytrader
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@AMPlifiedtrader, These spreads on every future can get very wide and much uglier than you would ever like, one should not be fooled by there low buying power needed. I lot at each duration pair to find the mean of each relationship, so i think giving a number maybe a bit unfair and misleading
alleytrader
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i look at each pair to find mean, typo
AMPlifiedtrader
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@alleytrader, So basically what I'm getting at, what do you use to determine if/when a spread is out of line?
alleytrader
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@AMPlifiedtrader, i use the chart posted with as much time as possible and that gives the relation ship between the two expires, and then lock for the sell zone at top of range and but at bottom of range looking for the reversion to the mean.
thebullshark
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Definitely interesting! I love learning. Some people are dead set against pairs trading. Seeing it as too much spend for the payoff. I have always felt open minded towards spreads thinking that if it is more reliable, that leads to consistency which leads to profit. I can see how the rewards could be lucrative. It would seem the chart above if giving a clear signal and could be taken directly without the need for the spread. How often does this protection pay off? Care to get into the details of exactly what you would trade? Guess it requires a Futures trading account huh? Is taking advantage of such trades possible with Options level 1? (Schwab term :) Writing was useful as it made me think harder about what you are doing here... I wish I knew more. Any literature you can recommend?
alleytrader
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@thebullshark, wow where to begin. dead set against pair trades, well in futures it is not really a pairs trade is is a spread trade and with that take advantage of only using the amount of money the spread represents so extremely cash efficient. these are not at all in anyway the same as paring up to stocks, in fact so much so they have there own symbol and there own volume. The chart is a spread chart so it is not showing you one underline it is show two.
There is no protect just a trade with a smaller foot print.
Yes a futures account is 100% required and these trade can not be done using options, that would 100% change the risk profile. This said does not mean options can not be used to supplement the trade.
Reading, probably the CME has stuff but I have not read any of anything so can not give recommendations on any reading, my understanding comes from knowing how futures work and then taking advantage of that knowledge with the help of a knowledge of trading in general.