Hello @garachen, I read that you traded equity index volatility. In Europe, market makers quote OTC products for retail, based on the major equity index futures. Recent regulatory changes capped the leverage available in these products which significantly limited turnover and profits for the providers. The providers are trying to drum up business in ways which may give up edge. 1) as the leverage restrictions don't apply to long options, providers are quoting options with a daily expiration on what seem like unrealistically tight spreads e.g. 2 YM points wide for a daily option. You can hit both sides of their quotes but doubt retail ever short as it needs hundreds of times the capital on deposit for the same delta. And the spread widths are fixed. This may make their desk substantially short gamma, which may be hard to hedge in that duration. Maybe they just book it. Settlement rules make their daily OTC product identical to the exchange traded product on the last trading day. I can see that this could be used in times of panic but wonder if there are more sophisticated volatility plays available which could make use of a 'cheap' leg. 2) providers quoting equity markets tighter than the underlying, e.g. 0.1 of a full ES point with no fees, good for (multiple clips of) 20 lots. If I had a strategy which filled passively in e.g. a volatility structure which used ES as a hedge and went to market on the ES leg then this could save 0.15 ES points plus the fees. 3 of these OTC providers used to have significant turnover such that they wouldn't notice/act on mispricings until someone had taken mid six figures from their book, likely with more than 1 customer doing the same trade. Historical examples included poor vol models in FX digitals and incorrect basis in back month commodity products. So while these opportunities may not interest you personally, they seem to fit the 'Path to Profitability' concept in building from e.g. 30k to 300k in order to buy down fees in futures or gain a meaningful return from opportunities in cryptos.
Of the two I would find the first one more interesting. Trades that are artificially difficult because of regulatory or capital hurdles can be very good. I’ve seen people spend 200k+ to get a risk less position off their books because they didn’t have the structure to hold it the last few days before expiration. I assume these OTC products are either CFDs or spread betting? I haven’t really looked into how to access those markets.
Yes they are - CFD & spreadbet. I'm sorry, I think I explained poorly. The regulatory action applies to retail customer position leverage. My lay understanding is that the resulting short options position for the dealer could be difficult/expensive to hedge as there aren't listed futures with the same expiration and they wouldn't be cheap to trade in the event of a significant market dislocation. I wouldn't expect to see the types of mispricings I've seen or heard about in these products again, so not sure of the value of your exploring this space, unless perhaps to offer an expensive vol hedge to the dealer. If the price (and spread) for an option is due in part to the costs of hedging the resulting position, it is intuitive that ATM strikes close to expiry would be illiquid with wide bid/ask spreads. So a dealer committing to make a market at artificially narrow spreads to attract retail flow (who only buy options) might also be creating a cheaper hedge than otherwise available for someone who has to deal in volatility.
%% Dont know; that is Why many record eod/end of day. Myself i hate last minuet stuff so i check out 5 hour charts alsne younger trader said ''day trading??'' NOT really , but not all eod also....................................................................................................Exspect more errors/slippage ,,,,,,,, on 5 minute chart than >>5 hours even if you get perfect data + you will not get perfect data.
@garachen Here in Euro Zone, interesting manual opportunities have been around what you termed news dissemination: -German / Italian bond spread (Eurex) -UK bonds and GBP currency futures around Brexit related complex news surprisingly, reacting within a second or two has been good enough for manual traders. Investigating Bitcoin for your 'calming the panic' idea however taker fees are roughly 12 increments and its not panicking regularly to the point where there isn't severe completion for queue. I'm thinking cross to initiate and exit on limits, which gets costs down to 8 increments or thereabouts. Not seeing several good opportunities per day, I'm sure 2007 was better, but probably still worth watching. Wishing you continued success.