Supply and demand

April 23rd, 2015, 01:09 AM

hi

i have been banging my head against the wall for the past several months looking for arbitrage opportunities. a simple example:

let's say the spread between front month and back month ES expiration is 7:

ES 06-15 - ES 07-15 = 7;

When the spread between them deviates away from the norm, let's say the spread goes to 8, there is an arbitrage opportunity, you would think. But from what I have seen, there is not. So my question is, how pegged are the quotes that the exchanges give us? Are the quotes based on supply/demand or are they simply systematically pegged to one another by computer algorithms? How is it possible that a billion dollar sell on ES 07-15 does not cause it to move more than ES 06-15? If ES 06-15 did not have that order also executed. Based on what I have seen, it seems the price differences between these are essentially same. And even when there is a spread which is out of the normal, when my order is executed, it's not there anymore. I understand that there are HF firms that are taking advantage of such discrepancies. But not for the retail guy? Is our broker/data provider shaving these prior to giving us the quotes? I mean at the end of the day, all we have is their quotes. Keep in mind, i've gone as deep as calculating spreads based on bid/ask data.

Another example, if you take the spread between DX 06 vs DX 09, it's literally a straight line, it never deviates. So that believes me to think that these prices are actually not based on supple/demand. Which in my opinion is a big problem. If that is the case, then we live in a fake world, and all of this will crash.

April 23rd, 2015, 09:28 AM

calhawk01

hi

.... If that is the case, then we live in a fake world, and all of this will crash.

fake is too strong a word I prefer 'manipulated'. 9/11 taught me 1 thing we will never ever crash.

April 25th, 2015, 01:39 PM

calhawk01

I understand that there are HF firms that are taking advantage of such discrepancies. But not for the retail guy?

You answered your own question IMO.

If you could do this are you going to leave a piece of the arb for me so I can have some or are you going to take it all?
Of course you are not going to leave it for someone else. Junk on someone's front lawn with a "free" sign doesn't last long let alone free profit.

We are the last in line as retail guys. Our only advantage is markets are so deep we are practically invisible from a market impact/liquidity standpoint.

Supply and demand

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Supply and demand