[jfutures]

Hi there,

I was wondering if anyone could point me in the right direction of how to effectively spread trade stock indexes, specifically es, nq & ym.

So for example if I wanted to go long 1,2 or 3 contract ES, how many contracts of YM or NQ would be best to go short to effectively hedge my position?? What other combinations provide good spreads in your trading experiences for trading YM and NQ also??

Im by nature risk averse therefore I like to trade conservatively and look to make consistent modest gains over time, therefore spread trading is the best route for me. I have found spread trading treasuries quite straight forward in terms of trading 2/5 years, 5/10 years & 10/30 year combos, however spreading stocks is unclear to me.

Replies would be much appreciated.

Thanks.

[fishing]

jfutures

the idea is to be dollar neutral

so let's say you want to sell ES and buy YM

ES trading 900, so 1 ES pt is worth 900 * 12.5 * 4 = 45000
YM trading 8500, so 1 YM pt is worth 8500 * 5 = 42500

the ration would be 45000/42500 or 1.06

so you can hedge 1YM for 1ES or 17YM for 16ES

[jfutures]

Thank you very much Fishing.

This really is excellent information and will prove to be most useful.

Thanks again.

[fishing]

no problem jfutures

i would love to hear how you are going to trade it..

[jfutures]

To be honest, I'm still experimenting.

I have a strategy based on assessing futures and cash markets whilst combining market profile and swings on different timeframes in order to identify potential opportunities. Knowing how to spread trade stock indexes is essentially to enable me to reduce my risk as & when the opportunities appear, because I don't like to make outright single directional plays in the underlying futures.

I guess I'm trying to identify how stock indexes move in terms of value per tick. With treasuries its clear that e.g. 10 year has more value per tick than the 5 year (I should really say more price movement in 10 year compared to 5 year generally) so a short spread trade would be short one 10 year and long one 5 year if you believe 10 year will decline. With stocks, it seems 'generally' speaking, whatever your bias may be for e.g. ES, it would be best to spread ES/YM or YM/NQ combos according to the rules mentioned in your post (which I will be testing when I get some time).

What methods do you employ if you don't mind me asking Fishing and which markets do you trade??

[fishing]

is spreading treasuries very competitive or is there room for retail traders?

i've been trading outright futures and used to take quite big hits occassionally (still trying to be discipline and minimize them)

that's why i'm very interested in spreading. i've been looking at ES/YM because of high correlation between the two and convenient hedging ratio (nearly 1 by 1). From what i observed, the spread is kind of correlated to ES on intra-day and daily charts, generally.

quite often it goes only 1 way without looking back on intraday charts, so that's quite a challenge for me.

other than that, i've been trying to find some documents for this trade for quite a long time but so far no luck...

[jfutures]

I'm not sure I entirely understand the question Fishing, would you mind clarifying please?? In treasuries, spread trading would simply be longing 1 and shorting 1 pretty much instantaneously (i.e. hitting market orders in both markets at the same time) in order to get yourself in. If you get the direction right, then the longer bond out of the 2 should start to show you profit at some point (whilst the other bond showing a loss which would be less than the profit on the longer bond). I was hoping this would be the case with the ES/YM spread, hence my original post. It looks fine, but then again I'm going through the tesing stage at the mo.

Actually I started to use spread trading strategies because I too used to take big hits on many occasions because of doing single futures directional trades. I have found that spread trading really does reduce my risk, but naturally it can reduce your profit per trade on a single contract basis but I'm fine with this, I'm more concerned with making modest consistent gains over time.

I'm afraid I have no docs on the subject otherwise I would have been happy to forward them to you.

[momentom]

You may want to look at spreading the YM against the FESTX50 future (the Dow50 in Europe). There is one margin issue that the YM is 24 hour market while the FESTX50 trades for 14 hours so you need to watch any overnights.

Try creating a single chart of the spread and then doing your analysis on that as if it was a single instrument.

Lots of opportunity but needs a lot of homework.