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.
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.