Trading HOLDRS in choppy market

Discussion in 'Trading' started by Massedou, Feb 11, 2003.

  1. Massedou


    I just read Deron Wagner's article in the March issue of Active Trader Magazine. I have been using a similar strategy of trading relative strength of sector HOLDRS and it seems to work ok during these choppy conditions. Does anyone else use a similar strategy with sector trading? Also saw similar article by Wagner in February issue of SFO magazine.

  2. Also does anyone that trades these things have any success getting printed in the middle of the bid ask spread? I have traded some RTH off the retail index but I have yet to get printed inbetween the spread. On the RTH the spread is usually 15-20 cents you really have to nail the entry to make it worth your while.

    couple of other ETF's besides the big three seem to have inca and island narrowing the spread but I guess there isn't enough vol on the others.

    anyway anyone successful with between spread prints on the less active etf's?
  3. What's SFO magazine?
  4. Hi Avalanche,

    We typically use ARCA for getting filled inbetween the spread and have pretty consistent success, although it may sometimes take a while to get filled at the price we desire. ARCA works the best because not only does the order go out to the order book, but it also routes to all the other ECNs and then the exchanges. I also have a spreadsheet with real-time updating fair values of each HOLDR so I know the best price I can realistically expect to get. Anyway, there are only a few HOLDRS where the spread is a problem, but we don't scalp so it does not matter as much.


  5. SFO = Stock Futures and Options Magazine

  6. Swipe


    D a couple of questions.

    1. how can I get a spread sheet like yours?

    2. EVEN THOUGH you dont scalp a .20 spread is a large cost to enter is it not?

    thanks i like the info you give
  7. Hello Swipe,

    The spreadsheet is something we designed by simply setting up the components of each HOLDR on a spreadsheet, factoring in expense ratios, and then using Townsend Analytics' RealTick to import live data into Excel using their TALnet feature. However, I don't think you will be able to do this with all data providers. Others would instead require you to manually update the quotes of each stock, which is too time consuming.

    I recommend you read the recent post by DavidI in the thread titled "Why Actively Trade ETFs?" It discusses the benefits of following the indexes for the HOLDRS to get an idea of fair value. For example, by using $IRH.X to follow RTH, you will get a fair value that is within pennies of the exact fair value that our spreadsheet calculates. Nevertheless, to answer your question about getting the spreadsheet, drop by our website ( and send me an e-mail. I can send you a copy if you like.

    Regarding your second question, a 20 cent spread is indeed a large cost to enter IF you use a market order. However, we typically use limit orders to enter and are able to get filled within a few cents of the fair value if we place our limit order somewhere in the middle of the spread. If you do the same thing getting out, it does not matter much. For example, we traded UTH (Utilitites HOLDRS) on February 13 and netted over 1.3 points of profit just on an intraday trade, despite the wide spread.

    Hope this helps to answer your questions.


  8. Hey Avalanche,

    We usually get filled within a few cents of fair value of each ETF by placing a limit order no more than 5 cents away from the exact fair value. For the less liquid ETFs with a 15 - 20 cent spread, that usually equates to being somewhere in the middle of the spread.

    We have found the best success using the ARCA ECN because it will go out to not only AMEX, but also NYSE, all the third markets, AND each ECN including Island and Instinet. If you just use AMEX to route orders, you will usually get screwed.