ZN ZB and NOB spread

Discussion in 'Financial Futures' started by londonkid, May 8, 2013.

  1. zbojnik


    Why is outrights for newbs?
    Where can I learn to spread spreads and what is it?
    #21     Jul 30, 2013
  2. s0mmi


    He's just making an over simplification of trading. It's not necessarily true anyway.

    The basics of "spreading spreads" is essentially, most of the time, dealing with Bank Bills OR trading a large portion of a countrys interest rate curve.

    We're talking about Euribor or Eurodollar for example.

    You can also trade a country's intra-related curve. For example the Bund, Bobl, Schatz OR the U.S. 2yr, 5yr, 10yr spreads.

    We call them butterflys. Or sometimes you can do double butterflys, or condors. Don't get too hooked on the name.

    Where can you learn to trade them? Don't. It will over-complicate you for no reason.

    The basics to learn are like this:
    ** (Note, I will use the example of the U.S. Bonds)
    > Trade the U.S. T-notes for a few months. Outright. You should have the 5yr and 2yr bond ladders up too.
    > Also have a go at trading the 5yr versus 10yr spread (Fight spread) during this time.
    >Only after you are CONSISTENTLY MAKING MONEY in the 5yr-10yr spread, should you start to investigate the 2yr versus 5yr spread.
    >Note that the spread of the (2yr vs. 5yr) against the (5yr vs. 10yr) is pretty tight and locked down. Lots of auto-spreaders are keeping it tight and trying to leg in/leg out.
    >What is your edge going to be? You need to trade more to find out.

    Eventually, you will think of "spreading spreads" as something like "hmm.. I think the 5yr/10yr is going to be rallying over the course of the week. It should be stronger than the 2yr/5yr spread. So I want to SELL the butterfly at prices 1 & 2 and sit on it for a week [i.e. Sell the 5yr/10yr, Buy the 5yr/10yr]"

    Note that spreading spreads usually involves BIG size for a very miniscule profit. It's all about REBATES and brokerage.

    It's also labor intensive.

    You can make more money, be more efficient, doing less. You can trade just the 5yr and 10yr U.S. Bonds and feel more comfortable legging in/legging out when caught. Why? Well... because you're doing, most likely, less than 500-lots at a time. You'll get filled! Most institutions with Butterfly curves, and big players, they are doing like a Buttefly of 20,000 or 30,000. So if they want to get out of 10,000 tnotes they can't just leave it on the Bid and get filled!

    Good luck friend ! If you have any questions let me know :)
    #22     Jul 30, 2013
  3. zbojnik


    So for this 5yr-10yr spread I need to trade both notes at same time? Do I need an autospreader?
    #23     Jul 30, 2013
  4. s0mmi


    > Nah just focus on T-notes (most traded bond in the world... and most liquidity).

    > If you live in the U.S.A then trade it with an auto-spreader. But becareful theres lots of legging risk with institutions and people with high-speed connections near the exchange who are trying to get the same price.

    In all honesty you are better off consulting someone about learning to focus and hone your skills on a small variety of products. You need guidance and mentorship. Otherwise its very hard to just jump into spreads with no environment to cultivate a good way of thinking about financial markets.

    For example, a nice toolset would be:

    1. Trading U.S. 10-yr Tnotes outright
    2. Trading the U.S. 5yr/10yr spread (legging it or using autospreader or using the ladder)

    I could complicate things for you but it would just add confusion.

    >At the end of the day, if you are motivated, passionate, and want to put in the hard hours to learning this then you will succeed at trading and these spreads.

    >Also I strongly recommend bringing up the German 10-year Bund ladder up as well. This will help you tremendously if you are caught in a leg. If the Bund is strong with green candles then you may be tempted to get rid of one leg and scale out the other on the upside for example. Although there are no guarantees, but if you're on the same side as the Bund direction then chances are you should get filled.

    >I wouldn't trade the 2yr/5yr product just yet. You need months experience on the 5yr/10yr. You need to observe what the spread does when U.S. data is good, when it's bad... when the Non-farm number is good, when its bad etc.

    >Like for example if Ben Bernanke says QE is going to be turned off then most likely the 10yr leg will be aggressively selling hence you will want to be long the spread maybe every session just trying to buy dips etc.

    >Remember, a good way to think about spreads is leaning on the fundamentals.

    Good luck friend. If you have any questions let me know!
    #24     Jul 30, 2013
  5. zbojnik


    You can be my mentor?;-) Or do you have any connections with any Prop firms in Chicago and can get me a job?;-)
    #25     Jul 30, 2013
  6. the fy and ty flys were hammered after the last taper comments during the selloff. this time around i actually expect the fy fly and zb fly to get hammered while the ty fly strengthens up if we sell off further. we'll see what happens but that will be my bias. also you don't have to carry butterflies as the other guy said to make money. i never carry positions overnight and i purely trade butterflies and there is plenty of movement / liquidity to do that.
    #26     Jul 30, 2013
  7. zbojnik


    How many ticks are we looking to make a trade? Do we need the tape?
    #27     Jul 30, 2013
  8. bone

    bone ET Sponsor

    Just as a side note,

    I have a few clients I took on in the early spring who are currently transitioning to the live markets, so I would be able to get a few qualified and motivated traders into the upcoming training rotation if that is something you're serious about.

    I would be happy to have a conversation with you about what I do and your trading background, and would be pleased to send to you some background information about myself. If you do review my background, and you then tell me that you are truly serious about becoming a client, I would at that time forward to you some client contacts so that you can ask them some questions on an independent basis.
    #28     Aug 16, 2013
  9. I am new to Treasure future, spread.
    in some way, I agree. I like directional bet. I trade options mainly. I realize directional betting is so powerful in option.
    but the risk is so tiny.

    in some situations, I think those exotic stragies may be fit. sometimes I buy call and put at the same strike in the event of earning surprise. beforehand I donot know the direction, but I know the odd of such surprise is huge.

    like recently CREE, nice trending up before the earning, in one way, you guess it will gap up after the earning. but in another way, you guess "if ..., the fall will be harder". in third situation, if no surprise, two ways lost.

    basically spread trading is a directional bet, you bet spread widen or shrink (people forget another situation, spread does not widen or shrink). if no direction, no money can be made.spread trading introduces more variables, that makes trading harder. I agree that is an illusion.

    in a fast moving market, better choose the simplest trading strategy. that is common sense.

    I enjoy ZN/ZF/ZB trading. if you feel ZB's move is too big, you can move to ZN, or ZF, even ZT. most people do not realize is: trade Zt just 250bucks, that correspond to 16ticks, you can double your money.with ZF, ZN, ZB, the easier you can double your money (margin).like last week's move, all doubled except ZT. Spread may move a little bit, the hardest to trade(plus paid double price commision).

    the looks the riskest is often the best vechicle to trade! ZB is the best, then ZN, then ZF,then ZT...

    before I trade CL (sweet crude), but I found CL's margin is too high compare to daily possible move ( I enjoy 5point dailymove,but that is not common). I found those treasure's margin is lower than sweet crude (more leverage to me),so I trade ZB...

    #29     Aug 18, 2013
  10. what are the contract ratios that you guys commonly use to take into consideration both tick value and dvo1 on the spreads

    5 vs 10 vs30

    10 vs 30

    Your comments are greatly appreciated.
    #30     Aug 26, 2013