Confused about the Ratio of Numbers of Contracts for a 2/10 Steepener

Discussion in 'Financial Futures' started by Cyrix, Nov 11, 2019.

  1. Cyrix

    Cyrix

    raVar likes this.
  2. raVar

    raVar

    I prefer to use the CME's site for it ... than something from TT. Not that I have some weird psychological hangup about TT. Not at all. I think what TT is doing for aspiring traders is great. But I've noticed they don't really update some of those slides, when the ratio's change. You can get an episode that is a few years old? And then the ratio changes.

    And the ratio's do change, for a number of reasons.

    There are a few ways to measure out what the ratio should be? But it about 2 to 1. More on that in a bit. But it's important to know, unless you have more capital (Maybe $150k +), you can't get it "perfect". Actually then, you can't get it quite "perfect". But you can get it to sort of a "close enough" area.

    Remember that if you're in the TuT ... one contract has less volatility and is $7.81 a tick (the two's), and another contract is $15.63 a tick, and more volatility (the 10's). In addition, you have yield and curve movements that cause the ratio to change. So to get them "equal" you have to take all of those factors into consideration, sorta at the same time.

    You have to know that there are a few factors that go into the ratio of contracts between the contracts. The quick, down and dirty method are the DV01's, which the CME will list out for you ... that give you the $ move for one basis point of yield (DV01 is Dollar Value for 1 Basis Point in yield change)

    https://www.cmegroup.com/tools-information/quikstrike/treasury-analytics.html

    You look at that, the DV01 for the 2's, is about $35.47

    The DV01's for the 10's (not the Ultras) are $79.25

    That'll give you a nice way to equalize everything out.

    If you have 10 2's, you should have about 5 10's. (10 to 4.47)

    But it does agree with the CME as to the ratio, when you check out the table for the 21 - 10 year and the 26 - 2 Year ... yes ... is about 2 to 1

    https://www.cmegroup.com/trading/in...ctor=INTEREST+RATES&exchange=CBT&pageNumber=1

    So that way you know, yeah ... the closest you can get to 2 to 1 is what you should have at the present time.

    The benefit of going with the CME site, is it's all based off of SPAN ... which has to be accurate, and it's updated. Which sometimes, what TT does does not stay up to date ...
     
    Last edited: Nov 11, 2019
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  3. Cannon_Trading

    Cannon_Trading Sponsor

    2 vs 1 is the appropriate recognized contract ratio set by the exchange .
    upload_2019-11-12_12-39-58.jpeg upload_2019-11-12_12-39-58.jpeg
    this is the current ratio to take advantage of a widening spread as set by the exchange. since rates have been so low for so long this ratio hasn't changed in well over 10 years. upload_2019-11-12_12-39-58.jpeg
     
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  4. marameo

    marameo

    How to read the value for a steepener trade such as: long 1x\ZT short 1x\ZN?

    Currently the spread is trading at -21'22'4

    What if it gets at -21'00'0 ?

    Thanks
     
  5. marameo

    marameo

    EDIT: is it safe to say 21' = 21% of a $100k notional value so from -21' to -20' = $1000?