A trading thought experiment

Discussion in 'Trading' started by axeman, Dec 4, 2003.

  1. Imagine the following scenario:

    You have unlimited capital.

    You start shorting the emini futures market at the rate of
    100 contracts every second.

    You do this until the market loses HALF of its value.

    At that point, you start buying all of it back at the rate
    of 100 contracts per second (same rate).

    Anyone care to wager if in the end you:

    1) made money
    2) lost money
    3) About even


  2. One more caveat.

    There are NO brakes in this scenario.
    The market wont lock limit down up,etc
    Trading will NOT halt.


  3. Since stuff SUPPOSEDLY falls faster then rises, the lame answer would be make money. But I say lose, because essentially it will be like one of those 1min 40 points spikes that shoot right back with a vengeance.
  4. You would lose, because value players would buy on the way down, but not sell on the way back up until they had made a healthy profit. Thus you would have more bids on the way down then offers on the way back up at the same prices, and would end up covering your position at a higher average price than you sold it.

    You may extract some profit from momentum traders in the futures, and possibly by forcing some arbitragers to puke out their positions, but value players by far overwhelm the capital available to these speculators, so on balance IMO you would lose.

    If your % target was down 1 or 2%, you might well make money.
  5. i'll postulate that you mean the es, and there is no vig.

    you would be close to even after the exercise, depending on exactly where you stopped playing.


  6. shorting every second from 1070 to 535? oh man, my finger's getting tired just thinking about it.
  7. pspr


    Actually, Globex will bust most of your trades as the E-mini will move away from the big S&P and the cash.
  8. jem


    In this case eventually the market would grind down and rip up. You would never be able to cover most of your position until it was back where it started (more or less) and you would have your butt handed to you on TV in Congreess by a Couple grey haired Senators.
  9. jem


    But I would by the first pullback off the bottom and make 3 points on 4 minis.
  10. The market just dove 400+ points and you
    would only go for 3??? :confused:



    #10     Dec 4, 2003