Don I am trying to put your 2) point in numbers, correct me where I am missing: 1) Spot price (spx) of 1426.84 + FV 10.56 (from http://www.indexarb.com/index.html) = 1437.4 2)1737.40/1434 = 1.00237%... 0.0024% 3) But diving WMT closing price of $46.16 by 1.0024% gives $46.06 but your buy price was $45.89... Did you simply reduce it from $46.06 by few cents? Short formula is 46.16X1.0024%=$46.27 but your is $46.36..Again, did you simply up your short price by few cents? Thanks.
jimclark, I didn't check your math, but assuming 46.06 is the correct FV opening for WMT there is no edge in trading it at that price. This strategy is attempting to buy at a discount or sell at a premium to that theoretical FV for WMT. So once you have the FV price, you apply a premium / discount usually in the range of .2 - 1% to give yourself a theoretical edge in taking the trade. Lescor, You said- In a very low interest rate environment with a low dividend yield on the index, the cash can actually trade with a premium over the futures. I think it would be a high dividend yield. I think for cash to trade over the futures you would need remaining dividends to be greater than the financing cost of the cash position. So I think it would take a combo of low rates and high dividends. Does that make sense? Never seen it happen so not sure...
This has got to be the clearest explanation I have seen, about what Don trades. It is not complicated and it makes sense...Just do what the Specialist is doing... 250 bucks a day aint bad...for a few hours work...Heck, trade Forex, the rest of the time... Thanks! Sure...simple strategy that I've used for decades. All night long the NYSE receives orders to buy or sell shares on the opening, at the opening price, regardless of what the price may be. For example, there may be 500,000 shares to sell of WMT and 350,000 shares to buy of WMT (at any opening price). This leaves an imbalance of 150,000 shares "extra" to sell. The Specialist looks in his "book" for buyers at lower prices until he can fill the order (and he Must be a buyer as well in this example). So, like this morning, WMT opened at 45.82 (down 34 cents. I had a buy order for 2,000 shares at 45.89 (based of FV calculations), and bought 2,000 shares at the opening price of 45.82.
You explained perfectly. Just called IB...looks like I had to enable "OPG" order type, no wonder I never seen it before, plus order needs to be in 15min prior to trade. One thing I need to work on is how to combine this strategy with my trendfollowing, momuntum trading. I think I'll do my regular due diligence in the evening and will place trade at the open based on where FV is heading. THanks.
You're right, I typed that wrong, I meant a high dividend yield. When fed funds were in the 1-2% range a year or two ago, FV was a negative number.
They're wrong on the 15 minute thing. You can submit right up until the stock opens, even if it is opening late. The common understanding around here is that you had to have your orders in two minutes prior to the open to be ensured a fill you are entitled to. I have scoured the nyse rule book looking for this 'two minute rule' and can't find anything. Sometimes when I'm running behind, my orders are still streaming in as the bell goes off. As long as the order makes it to the post before the stock opens, I'll usually get the fill. There are rules based on size and time priority though. I quite often see the stock open right at my price with no fill, or only a partial fill.
Lescor, you said you trade same stock everyday, if you want to. What about combining this strategy with momentum trades? I wonder how likely for stock to dip (though happens often) when it's in bullish mode and you can see bullish and volume and pressure building up. I'll test it to tomorrow and see.
Early mornings Yahoo Finance has data on Spot price (spx) and where Futures are trading.. Also I watch Bloomberg online and they aslo provide this info. What is a one "perminant" place I can check for this data prior to market open?
The spot price, or S&P 500 cash, is just where the index closed the previous day. Every financial website and data feed will have this. For futures you will want to use the emini, contract symbol ES. If you are relying on delayed data for this, your prices could be off significantly by the time the market opens if the futures have moved even a couple points. You should have real time ES prices, from your execution platform or charting service. Like I said, there are lots of ways to trade once you're in. This just gives you an entry, after that it's all you. I submit orders from the same list of stocks each day. The number of fills will vary day to day, some days maybe 20% of orders are filled, some days none. This could be an insurmountable hurdle if you are trading in a retail account. You do not know how many positions you are going to have and how much capital it will require. Most retail brokers will count every open order against your margin, so you could run out pretty quick. It can be a very capital intensive strategy, which is why it's best suited to prop accounts.