ES and 10 YR spread trade

Discussion in 'Index Futures' started by lolslayedyou, Aug 3, 2010.

  1. I'm a newbie when it comes to spread trading and I was wondering any of you could help me. I wanted to put on a spread trade between the ES and the 10 yr treasury futures.... The contract values are different and I was wondering how you go about putting this trade on. How many 10yr futures contracts do I need to have for every ES contract I have or visa versa??

    Thanks for your help
  2. 1) Be careful. You can easily lose money on both sides of the trade. The correlation between the two markets may not be as good as you expect.
    2) You can consider being volatility-neutral based on the average daily range for each contract. For the sake of simplicity, if the ZN has an average daily range of $800 per contract and the ES has an average daily range of $1000 per contract, your "ratio" would be 5 ZN versus 4 ES. The ratio can fluctuate more than you expect.
    3) Again, you'll run into "problems" when the correlation falls apart. :cool:
  3. The Standard & Poor’s 500 Index and 10-year Treasury rates posted a correlation coefficient of 0.8412 in the 60 trading days through June 16, showing stock prices and bond yields were the most linked in Bloomberg data going back to 1962.


    The correlation level between the U.S. equity benchmark and 10-year Treasury yields averaged 0.5711 from October 2007 through March 2009, when the S&P 500 plunged 57 percent.
  4. You can try linear regression...
  5. You could try darts.
  6. Why a spread on the ES and 10yr? No sense in trying to reinvent the wheel and by the nature of your questions you sound like a newbie, which makes the spread more "dangerous".
    Stick to proven spreads such as ES/YM. Better correlation and less surprises, plus you can get portfolio spread margin at a lot of FCMs.
  7. More efficient would be AUD/JPY or EUR/JPY - ES correlation.
  8. wadams