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Bond butterflies
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Bond butterflies

  #1 (permalink)
Trading Apprentice
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Bond butterflies

Hello,

I'm wondering if anybody had success trading bond futures butterflies (no options)?
I've seen suggestions to trade /ZB-/UB - but high capital requirements with potential to make only 2K out of 100K over undefined timeframe.

WBR

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  #2 (permalink)
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  #3 (permalink)
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I uh..think the 'butterfly' necessarily implies using some type of options. Otherwise what you are suggesting is simply trading the yield curve for the duration of the futures contract.

Both can be done profitably, but usually the purpose of those trades are very different from one another.

It might be better to start off asking what phenomenon and thesis you are trying to express before selecting the stategy and execution method to capture the edge.

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  #4 (permalink)
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MacroNinja View Post
It might be better to start off asking what phenomenon and thesis you are trying to express before selecting the stategy and execution method to capture the edge.

Let's say I want to trade the following: /CLH7-2*/CLK7+/CLK7
This is "kinda" butterfly.

I see that it fluctuates between -3 and 0.5

Straightforward method would be to issue market orders at -3 to buy and at 0.5 to sell. Been wondering if anybody did something like this.

I think that's what you're referring to by "trading the yield curve".

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  #5 (permalink)
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jumpingfella View Post
Let's say I want to trade the following: /CLH7-2*/CLK7+/CLK7
This is "kinda" butterfly.

I see that it fluctuates between -3 and 0.5

Straightforward method would be to issue market orders at -3 to buy and at 0.5 to sell. Been wondering if anybody did something like this.

I think that's what you're referring to by "trading the yield curve".

I suppose that there's a typo in your butterfly above?

I've never done this but in practice it would be very difficult to get fills at -3 and 0.5 especially with market orders...

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  #6 (permalink)
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LaurentM View Post
I suppose that there's a typo in your butterfly above?

I've never done this but in practice it would be very difficult to get fills at -3 and 0.5 especially with market orders...

No, there's no typo. I tested it today on demo, it seems to generate small profit when things fluctuate.

Limit orders, of course. It's probably not realistic to do it manually, perhaps with aid of software.

I agree that it's gonna be tough to get fills on edges, but within certain tight range - might work. Just got to test it on real $ in some future.

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  #7 (permalink)
Market Wizard
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jumpingfella View Post
Let's say I want to trade the following: /CLH7-2*/CLK7+/CLK7
This is "kinda" butterfly.

I see that it fluctuates between -3 and 0.5

Straightforward method would be to issue market orders at -3 to buy and at 0.5 to sell. Been wondering if anybody did something like this.

I think that's what you're referring to by "trading the yield curve".

You created a thread entitled "Bond butterflies" but then ask about Crude Oil Butterflies. You'd probably get better answers over in one of the Crude threads.

I know nothing about Bond Flies (but would love to learn) but I do know that Eurodollar Future's (interest rates not forex!) have a HUGE butterfly market. In fact there's some links in this recent Eurodollar thread you might find interesting.
Eurodollar (GE) - CME

As @LaurentM said I think there's a typo in your post and that you meant /CLH7-2*/CLJ7+/CLK7. This is what I would call a CL HJK Futures Butterfly. Before we get into discussing trading fly's let's first discuss execution and costs.

Execution In crude oil, while the exchange does list Butterflies as a stand alone product, the implied engine is NOT switched on unlike Eurodollar's where it is on. What this means is that all the orders in the butterflies are outright orders and not implied from the market itself. What this means is that many of the orders are market markers showing a price that is 1 tic wider than where they can hedge/arb it themselves. As such in my experience the best way to trade CL flies is to use an autospreader. Without a good autospreader most of your fills will involve paying away the bid-ask (even with limit orders) and I think your slippage will kill you.

Costs A futures fly involves 4 futures contracts even if executed as a single fly product. So to buy and sell a fly you are going to pay 8 sides/4 round turns. In your example you mentioning buying -3s and selling 0.5s. Crude spreads and flies unlike some interest rate and equity products are priced in full ticks so you would need to be selling 0s or +1s. Even if +1s, thats a 4 tick profit margin which is $40. Question is what are you paying for your 8 sides to make that $40? Also what is your autospreader costing you? Now lets say for every trade where you make your 4 ticks you have another where you have to wash the trade for zero. Whats your cost structure when you have a 50/50 win rate?

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  #8 (permalink)
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SMCJB View Post
You created a thread entitled "Bond butterflies" but then ask about Crude Oil Butterflies. You'd probably get better answers over in one of the Crude threads.

You're right, it was wrong example (with typo), sorry. Thanks for the link to Eurodollar futures too!

This one would be better to discuss:
/ZB-2*/ZN+/ZT

It moves in the defined range intraday, so perhaps there're opportunities there.

As for your questions on execution and costs: I'm looking for good autospreader software, so far heard only about Autospreader from Trading Technologies (screenshots look non-intuitive).

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  #9 (permalink)
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There're actually videos on youtube where people discuss trading bond yield curve: /ZT, /ZF, /ZN, /ZB, /UB

I'm referring to this one: https://www.youtube.com/watch?v=f-P40tppKP4

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  #10 (permalink)
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jumpingfella View Post
You're right, it was wrong example (with typo), sorry. Thanks for the link to Eurodollar futures too!

This one would be better to discuss:
/ZB-2*/ZN+/ZT

It moves in the defined range intraday, so perhaps there're opportunities there.

As for your questions on execution and costs: I'm looking for good autospreader software, so far heard only about Autospreader from Trading Technologies (screenshots look non-intuitive).

Also, take a look at the CTS Autospreader, this might be the cheapest option. There's also the CQG Autospreader but it is quite expensive too.

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