sp is 5x the value of es. 1 pt in sp = $250 1 pt in es = $50 5x es = 1 sp. also tick size is larger is es at 4 ticks per pt x 10 ticks per point. so pit trader hedges 1 sp position with 5 es. sp moves 2 ticks, es stays at same level, un wind position for 1-2 sp ticks & evens on es. think thats the idea. hope that helps.
I took the 5 to 1 ratio into account in my calculations. In other words I divided the number of contracts trade inthe ES by 5 before comparing them. I compared the value and not the volume (# of contracts) between the ES and SP. The ES trades 25 times the number of contracts that the SP does in any one day. i.e. 5 times the value.
Sometimes rick santeli (sp) on cnbc is at the merc in the afternoon. from what i can see the pit is very dead. He stands behind a broker that i used to arb orders to. Three years ago this broker employed 4 clerks, a trade checker, and two other brokers full time. now i see him standing there all alone. not even one clerk. we have two locals in the spu options over there and they say its all but gone. its sad to see really..i stood on the edge of that pit for a long time (clerking) what a great pit. But like danny divito said in OPM..."there was once a company that made the best god-damn buggy whip that money could buy" i give the pit another two years tops. just check out the eurodollars...its something like 85% electronic now. jim
I like the discussion and chart. I just am wondering, out of the votes how many are traders in the pit?
sheridan - you bring up a good point - hard to say if people are being realistic or manipulating what they want - but then I am biased in saying that because my calculations show 2008 and I obvsiously don't want to be wrong - I have my ego on the line! In a chat with someone this afternoon they said to me "why do all the big guys still use the pit?" and this made me recall a fund manager that I worked for. I'm guessing that they still use the pit because: (1) it's easy - pick up the phone and place order (they only trade once per month) (2) their client mandate (written several years ago) states that they can only use the SP (and doesn't allow them to use the ES) - they'd need to rewrite the mandate and get their clients to sign off on it to be allowed to use the ES. Point (1) is important because if you're trading once per month then you have to have someone at the fund management firm with a trading platform with all the passwords etc. installed on their computer and what if that person is on vacation/sick etc? Easier for any trader to be able to pick up the phone and place the order.
commercials also like the pit because you don't have to show your size and the filling broker can have discretion on how much to layoff knowing how much volume the pit can take without running the order.
Both the Liffe and Eurex have "upstairs" or wholesale markets so that large players can make large trades without getting front-ran and moving the markets. Often these deals are made over the phone and then reported to to the exchange. These deals to not add any liquidity to the market that small traders use. Pits also are a way to facilitate "wholesale" trading that perhaps helps to add liquidity into the broader market.