Financial spreads

Discussion in 'Financial Futures' started by maninjapan, Nov 13, 2009.

  1. Guys still very new to financials here, looking at the bas spreads, FOB, NOB etc. Ive gotten the ratios from the CME website, Id like to try and keep it simple, how would I go about charting thsi spread? Is it just as simple as 30 - 5? Or do I need to adjust it for the ratios? (the 30/5 is a 5:3 ratio from memory)

    Any help would be much appreciated here guys,

    thanks in advance!!
  2. It's up to you... If you don't use the appropriate ratios, you'll get a chart of something that will be directional, to one degree or another.
  3. martinghoul, thank you for the reply. What would be the formula to chart them. 30year*3 - 5 year*5 (to include the ratios)?
    Or is there some standard way to chart them?

  4. The most common way to do it would be based on DV01 weights. If you have gotten the ratios from CME, they should be the right ones. It certainly wouldn't be right to use 30 - 5.

    Essentially, just chart the thing you're intending to trade...
  5. morreo


    Based on DV01's the current ratio is 5 to 2 for the ZF vs. bond
  6. bone

    bone ET Sponsor

    Size traders have been finding that the Bloomberg DV01's suffer from some intraday 'tail risk' as compared to a blended approach using currency valuations and short-term volatility skews.

    For a 2:1 or 3:2 trader, it makes no difference.

    Personally, I think the U.S. yield curve is starting to behave a bit better in terms of mean reversion.
  7. BBG DV01 is just a shortcut, really... It's often wrong, but not by much, which means it only matters in a few cases where size does matter.

    In reality, I use a DV01 that revalues the whole basket to take into account the probability of a CTD switch. Moreover, it would depend on whether you're interested in the weights at delivery (fwd measure) or its spot equivalent.
  8. bone

    bone ET Sponsor

    Martinghoul is spot-on as usual. Clean Price versus Dirty Price.

    A bit more mean reversion would be great news for alot of traders in this market space.
  9. Tell me about it, Prof...

    Mean reversion would be welcome here, but we're going into December, so I am not too hopeful, to be honest.
  10. Martinghoul, you mean to say, that there is some seasonal trends in December between the products? Or trading just goes to crap in Dec, cause everyone's finishiing up for the year?
    #10     Nov 17, 2009