Based on ADRs, you can expect about 2.5 pts of YM movement for each ES tick (2.5 x $5 YM = $12.50 ES), so you had the right idea.
Exactly. What I didn't do is figure out exactly where ES was at 9:04am (which is the time stamp on my YM short) in order to figure out the optimum long hedge entry. So, since my eventual entry on ES was about a point higher that it should have been, I was actually under hedged and ended up with a loss when I closed ES because my entry was too high. Had the right idea, but calculated and then executed improperly.
Damn. Dead again too Day is over for me. System too flaky. And I don't want to trade the CME when the CBOT is off. Not a safe market to wade into.
To ECBOT traders: Mon Mar 7 13:28:22 2005 EST ECBOT has informed us that they will resume trading at 13:30 EST. === This day is shot. Strange, I am getting prices from one of my feeds but not from IB nitro
I think some will be confused by the above discussion of ES / YM hedging ratio... let me see if I can clarify. The tick sizes are irrelevant. To compute the optimal hedge ratio (OHR) -- how many ES to go long for each YM short? -- one needs simply to consider the relative USD value of a 1% move in ES and YM, adjusted for beta. Beta here is the coef. (slope) of a linear regression of % change in YM (dependent variable) on % change in ES (independent var.), with the intercept forced to 0. (Such a regression works well because YM and ES are highly positively correlated.) The time frame of the inputs should be similar to the expected hedge duration. So, if counteracting an exchange blackout, perhaps hourly is apppropriate; no hard rule here. I'll let you run your own regression on your data. For this example, let's use 0.9. In this case, using today's values at 9:20 am CST: OHR = 0.9 x (10,940 x 1% x $5) / (1,226 x 1% x $50) = 0.9 x 0.892 = 0.803 ~= 0.8 ES contracts for each YM contract. In plain English, ES: 1) moves more in $ value than YM, for a 1% move in each, about $613 v. $547; and 2) is more volatile than YM, on average. So, if anything, you were overhedged by about 3 ES contracts long (15 x 0.8 = 12). Unfortunately, the fact that your long ES entry was late cannot be considered. If you go long more ES than called for by the correct OHR, you are now adding an outright long bet on ES to the long/short ES-YM spread. That's fine, as long as you're aware of the additional directional exposure risk you're taking on and accept it.
Before I forget: let's not lose sight of DIA as a natural "perfect" hedge for YM in case of only that particular futures exchange being down, like today. Assuming that one is set up to trade stocks as well as futures. 500 sh. for each future... no regression needed. Similarly for the other e-minis and their respective ETFs.