implied IN/OUT orders on CME globex

Discussion in 'Financial Futures' started by saminny, May 2, 2010.

  1. saminny



    I need help in understanding the implied orders on CME globex. This is in reference to euro dollar future contracts

    The IN implied orders is clear. From example 1, for two outright contracts GE1 and GE2, the implied IN GE1-GE2 contract pricing would be:
    GE1-GE2 BID = GE1 BID - GE2 ASK
    (since we are buying GE1 and selling GE2)
    GE1-GE2 ASK = GE1 ASK - GE2 BID

    However, the OUT implied orders is not clear. Consider example 5. It says for given outright GE1 and GE1-GE2 spread, the implied GE2 pricing would be:
    GE2 BID = GE1 BID - GE1-GE2 ASK
    This doesnt make sense to me. Similar to IN, shouldn't it be something like this:
    GE2 BID = GE1 ASK - GE1-GE2 ASK (since GE1-GE2 ASK means we are bidding GE2 and selling GE-1). This would make IN and OUT equations similar.

    Could someone please help me understand this. Many thanks!

  2. TraDaToR


    In the case GE1-GE2 spread refers to +GE1-GE2:

    Implied IN:

    (+GE1-GE2) BID = GE1 BID - GE2 ASK
    You can SELL GE1 and BUY GE2 at the calendar bid.
    (+GE1-GE2 )ASK = GE1 ASK - GE2 BID

    Implied Out :

    GE2 BID = GE1 ASK - ( +GE1-GE2 ) ASK
    GE2 ASK = GE1 BID - ( +GE1-GE2 ) BID

    You were right here... if I'm right.
    My brain freezes whenever I try to figure out implieds...LOL.
  3. TraDaToR


    Oops, Error on my part

    Implied Out :

    GE2 BID = GE1 BID - ( +GE1-GE2 ) ASK
    GE2 ASK = GE1 ASK - ( +GE1-GE2 ) BID

    You don't have to use the same equation. Implied In and Out are 2 different operations, you are not buying GE1 and buying ( +GE1-GE2 ) to get GE2 Bid, you are selling GE1 and buying the calendar...

    Your equation is still right but it's not the implied out price, it's just the initial GE2 Bid obtained according to the implied IN calendar prices... Your source is right. Confused?LOL