Trading the S&P/DJIA spread

Discussion in 'Index Futures' started by esc_trader, Dec 22, 2002.

  1. Trading the S&P/DJIA spread live during the day, I will be sending out buy/sell signals and looking to discuss strategies with others. I have found hold periods to be a few seconds to a few days on avg. Looking for 3-20 DJIA pts. ($15-$100 per contract, before commissions)

    To keep out the "noise" of a chatroom I plan to initially send updates via MSN Messenger during the day, we can do discussion here on this ET thread.

    PM me if interested. Of course, no charge and I am not selling anything. Thanks!
  2. Can you provide some more details on your methodology? For example what signals do you look for, how has past performance been...
  3. H2O



    I've been trading spreads for quite some time now. Great to see other people becomming more and more interested in this strategy.

    I'd really like to participate and we'll try to learn from oneother.

  4. People have varying levels of experience with spreads, so I'll try to keep it simple. For the beginner, more information about spreads is available on the web, and Stephen Reverre's "The Complete Arbitrage Deskbook" is a notable book on the subject.

    I trade the S&P/DJIA spread using the S&P emini futures contract on CME/Globex and the Mini Dow ($5 multiplier) futures contract on CBOT/ace. For stock traders, the SPY and DIA stocks can be done instead, which I have done in the past. For now, I will be focusing only on the futures, but may include stocks at some point.

    I'll get into more details about the spread in the coming days. Know that, in my system, BUYING THE SPREAD refers to the simultaneous BUY of an S&P emini contract, and SELL of a DJIA contract.

    I will also give a price for the spread. This is computed by:
    (Emini S&P conract price * 9.5) - (DJIA contract price)

    A couple important points.. First, the number of contracts can be increased, for instance buying and selling 5 contracts of each at a time, but liquidity may become an issue on the DJIA - and that brings me to the second point..

    There is risk in this type of trading, but it is more execution risk than market direction risk. The proper way to trade this is to buy and sell the corresponding contracts simultaneously, so you have no market direction risk. Of course, some may buy one side and only buy the other side if the first position moves against them.
    This is a variation that may be used, I have done this at times in the past - but I won't get into it here, as it kind of defeats the purpose of spread trading by risking directional moves.

    Also, remember execution risk is your primary challenge in this trading. It is better if you are fast on the trigger. Better also if you trade both positions in a basket trade if your software allows.

    You need LOW commissions. I wouldn't pay more that $3 per side/per contract. Interactive Brokers ($2.40/side) and I believe Advanced Futures are below this level.

    I'll get into more information in the coming days. I will post trades here on ET for a few days, after that I will do so on MSN Messenger only. The holding period may be a few days (even more sometimes), especially in slow market periods. Considering this holiday week, maybe not so much action this week.

    Best Wishes!
  5. I am looking to SELL the spread at 22-24.
    Remember price is (S&P emini contract * 9.5) - (DJIA contract)
    (ES = 894, YM=8470) or equivilant.

    Also, I do not put all my capital into the first trade, I leave some free to add to the spread if it goes the wrong way. Maybe 1/4 to 1/2 of my available capital I use on the first trade.
  6. I am looking to BUY (Cover) at 15-18 right now.
  7. Looking to SELL the spread at 22-24.
  8. Looking to SELL the spread at 34-36
  9. sussex


    Slightly aside of this I was trying to calculate the perfect hedge using either Dow $5 and NQ $20 contracts for 20 S&P $50's yesterday.
    I was basing it on 63 days of non globex backdata. My calculations came in at 37.6 NQ's {therefore trade 38 to cover extra com.}and 21 Dow's. Liquidity and strength of individual indexs will also pose problems at times.
    Is anybody else to offer any more precision to my calculations?
  10. After the 1st day, we are short 2 at about 29. Spread shot up yesterday on the up move in the morning.
    #10     Dec 24, 2002