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ES vs S&P Cash with Market Profile


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ES vs S&P Cash with Market Profile

  #11 (permalink)
 
Big Mike's Avatar
 Big Mike 
Manta, Ecuador
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@Private Banker, I have a feeling we are veering off course. But, wouldn't it be common for funds to be using the December contract in order to avoid a lot of these rollover issues throughout the year? And then liquidate the majority of their position by year end, and put on new positions at the new year in the new December contract?

So if their hedge is in December contract, they would just use the current front month for the actual profit center.

Anyway, I am just guessing as I've never really thought about it, read about it in that detail, or done it myself in that way.

Mike

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  #12 (permalink)
 
Private Banker's Avatar
 Private Banker 
La Jolla, CA
 
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Big Mike View Post
@Private Banker, I have a feeling we are veering off course. But, wouldn't it be common for funds to be using the December contract in order to avoid a lot of these rollover issues throughout the year? And then liquidate the majority of their position by year end, and put on new positions at the new year in the new December contract?

So if their hedge is in December contract, they would just use the current front month for the actual profit center.

Anyway, I am just guessing as I've never really thought about it, read about it in that detail, or done it myself in that way.

Mike

Hey Mike,

Yes, we may be venturing a bit off topic but I do enjoy discussing this. In theory, I could see how that would be reasonable but this is assuming someone is just positioning long term short and that particular contract month were providing the adequate liquidity. To position long term, most funds would probably be short the ETF or through some sort of synthetic position such as a VIX strategy or options strategy. The outright futures are used more for trading around a bigger position beyond my reference of "core" or providing a portable alpha strategy to a bigger picture thesis such as having a low Beta portfolio while adding Alpha from a low correlating asset class. An example of that would be a Beta neutral fund that is adding alpha through actively managing futures from an asset class that is not closely correlated to the funds tracking Beta.

So to add to that, if you simply look at the volume occurring within each contract month, you can clearly see which month is being utilized the most. The December contract only has 6,086 contracts being traded with an open interest of only 11,271. It would be very difficult to move 50,000 - 150,000 contracts through that contract when you have all of this daily liquidity in the front month.


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  #13 (permalink)
 
Big Mike's Avatar
 Big Mike 
Manta, Ecuador
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Thanks Ben, makes sense. When I traded oil a few years ago, I did notice a much higher volume on the December contract. Maybe what I was mentioning is more prevalent in energy strategies than index strategies.

Mike

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  #14 (permalink)
 
Private Banker's Avatar
 Private Banker 
La Jolla, CA
 
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Big Mike View Post
Thanks Ben, makes sense. When I traded oil a few years ago, I did notice a much higher volume on the December contract. Maybe what I was mentioning is more prevalent in energy strategies than index strategies.

Mike

Yes, CL is an entirely different animal and the further out contracts do have higher volume which is due to Calendar Spreads, etc. which constitute a majority of the energy markets' volume. So, that assumption is very valid in markets like Crude.

Cheers,
Ben

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  #15 (permalink)
 
Big Mike's Avatar
 Big Mike 
Manta, Ecuador
Site Administrator
Developer
Swing Trader
 
Experience: Advanced
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Posts: 50,396 since Jun 2009
Thanks Given: 33,172
Thanks Received: 101,537


Private Banker View Post
Yes, CL is an entirely different animal and the further out contracts do have higher volume which is due to Calendar Spreads, etc. which constitute a majority of the energy markets' volume. So, that assumption is very valid in markets like Crude.

Cheers,
Ben

Good to know I haven't completely lost my mind, just yet.

Enjoy your weekend!

Mike

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Last Updated on June 22, 2013


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