Shortie, you start a thread and a poll confessing total ignorance about XLE, and you rapidly shoot down my suggestion completely out-of-hand with an impulsive response ? I will bet you $10K cash that my daily calls with XLE and a spread combination of my choice will be superior in terms of Win to Loss percentage to your daily directional calls with XLE as a flat price single name. Game ?
i am still working on good strategies. so i can't take your bet right now. naturally, once my strats are ready, i will easily kick your butt. i am not shooting down your suggestions. maybe you don't explain what you do sufficiently clearly. how do you pick the strong stock? purely based on technicals? where does the edge come from? why can't anybody do the same thing? if anybody can do why do we need Bone?
Shortie, if anybody could do it, then punters like you wouldn't be starting these threads to begin with. Given the same amount of capital, and with me suffering far more slippage costs, I will be more consistent and NET profitable than you are making daily directional bets with XLE as a single name and flat price. Especially with the leverage I get with the spread margin offset. Redi-Plus, Knight Direct, same amount of capital. $10K cash bet.
still don't hear any explanation about the nature of your edge... you do know that one must have an edge, right?
What is your edge? All you want to do is take a shot on the short side because it's "up too much" right? Seriously, why can't anyone do that? Surely even a monkey could look at the chart and see it's "up too much". So what is your "edge" on the short side?
I feel oil is likely to decline. One hypothesis could be raising rates in China. If oil declines then refiners will benefit pushing the SPX higher. I think he ask a legitimate question. Why should a spread be any better in general? The trade probability is based on whether my hypothesis turns out be true.. or in his case if the RSI turns out to be a good reason to short.
The spread is better because he can make money on XLE even if the index goes higher. It also takes the exact timing of the trade out of the equation. What if he gets in too early, too late, etc. Also spread trades tend to trend longer then the actual underlying trend.
Is Spread Professor stating he can model a stationary time series? Even so, not sure how that helps one. Why would this be any more stationary in the future then finding flat price action in a range? If my hypothesis is RSI is overbought then that forms the predictive advantage. I'd like to understand how spread can give one an edge. But I don't really understand.. It seems to me the INITIAL hypothesis forms the edge. If I decide to short on a coin flip, I can't see how going long/short another instrument would help.
Lucias, your 'hunch' is predicated on the notion that a spread differential between two instruments behaves like a flat price instrument. They don't. In fact, that is the reason why pure portable alpha returns are typically generated using spread differentials or some type of properly constructed relative value portfolio.