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Jigsaw Trading's Peter Davies - Ask Me Anything (AMA)
Started:March 9th, 2013 (12:29 AM) by Big Mike Views / Replies:67,463 / 306
Last Reply:October 25th, 2016 (05:35 AM) Attachments:63

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Jigsaw Trading's Peter Davies - Ask Me Anything (AMA)

Old July 19th, 2014, 02:54 PM   #81 (permalink)
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tinkug112 View Post
This question had been puzzling me for quiet some time.
Note: I trade Indian index only excuse me if some errors

1> I understand Index is derived from set of stock. Example ES --> Citigroup, Microsoft so on.
Index will change when these stock prices change. How can Bids/Ask prices in Index futures effect index future price ?

2> Why do correlated instruments move with such precision (ES,NQ). Even if some diversion is seen for some time, they catch very soon.


The index itself is separate from the futures instrument that is derived from that index (hence it's a derivative).

With ES - you have
- the stocks
- options on the stocks (also derivatives)
- the ETF SPY
- Options on the ETF SPY
- Futures options on the ES Futures

The index itself isn't tradable - it's just a number with a set of rules as to how that number is derived. There's a company that maintains that index.

The index can't be traded but the stocks can and all the above derivatives can. The question that will drive you half insane is "which is the tail and which is the dog?"

If the above isn't enough, treasuries and currencies also have relationships with the above too.

Stat Arb strategies exist to take advantage of mis-pricing between the various instruments, so they are kept in line but there is never a single, clear leader all the time. If there was, we'd just watch that move first and trade the lagger.

To take into account all of the above before you place a trade would give you analysis paralysis. So my take on it is you trade an instrument primarily based on the information from that instrument. Then secondary, you watch market internals, related instruments for backup.

Correlations break down too - some short term and some long term. NQ is tech stocks - they can be doing well if the overall market is performing poorly.

One of the things I tell people is to not fade all icebergs - an iceberg in front of a one way market could just be stat arb and so will have no directional impact. On the other hand an iceberg in a pullback may also be stat arb but it'll still spook people out of countertrend positions and hence will still have directional impact.

I try not to think too hard about all of this to be honest.

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Old July 19th, 2014, 03:15 PM   #82 (permalink)
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Thanks Peter,
"I try not to think too hard about all of this to be honest"
Understand what you said.
Have a reasonable success with Tape. Wanted to make sure approach is correct.

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Old July 19th, 2014, 04:04 PM   #83 (permalink)
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FalseProphets View Post
This is a thinking man's/woman's question.
All derivative instruments generally have a few banks who have been charged with arbitrage responsibility. The intention is to keep indices, ETFs, options in line with the underlying basket of assets. I would advise you read some white papers on ETFs available online to see how this done.

Hi can you point to one white paper on arbitrage responsibility please ..

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Old July 19th, 2014, 04:29 PM   #84 (permalink)
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Be resourceful..

Step 1. Access Google Scholar or Thomson Reuters or Bloomberg etc. etc.
Step2. Search for "ETF arbitrage"
Step 3. Mind=Blown!

Tip: some intellectual works online cost money!

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Old July 20th, 2014, 04:29 AM   #85 (permalink)
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tinkug112 View Post
Hi can you point to one white paper on arbitrage responsibility please ..

I would recommend this book Trading & Exchanges: Market Microstructure for Practitioners for detailed and understandable discussion on arbitrage and anything else related to trading. A real goldmine of a book.

Price gone up $20 since I bought it 2 months ago, but hey, still just less than 2 ES points for a book that will save you much more in the short term. But being 600 pages long it might take a little longer than 'short term' to get through it all. Fantastic discussions of all kinds of traders inside, including the games played.

Richard
Hong Kong
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Old July 25th, 2014, 06:48 AM   #86 (permalink)
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RE: TPO Session Template and/or settings...

Greetings DT....

I'm struggling getting my TPO chart to look like yours.
Is or would it be possible to send me template and/or post screen shots of your settings?

Much appreciated and respect what you do for the futures.io (formerly BMT) community.

Mike S.

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Old July 28th, 2014, 11:30 AM   #87 (permalink)
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msull35706 View Post
Greetings DT....

I'm struggling getting my TPO chart to look like yours.
Is or would it be possible to send me template and/or post screen shots of your settings?

Much appreciated and respect what you do for the futures.io (formerly BMT) community.

Mike S.

Sure Mike - for my daily profiles - 1 profile for overnight session, 1 profile for pit session

Step 1 - set up a split session profile (I use 16:15 as end time - when the stocks close).

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Step 2 - chart settings

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Step 3 - Profile Settings

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Old July 28th, 2014, 11:54 AM   #88 (permalink)
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DionysusToast View Post
Sure Mike - for my daily profiles - 1 profile for overnight session, 1 profile for pit session

Step 1 - set up a split session profile (I use 16:15 as end time - when the stocks close).

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this is a strange looking session template

3 things could be changed:

1. on sunday the market opens at 6:00 pm eastern time, not 4:30

2. the overnight session is missing 1 minute when you set "end time" to 9:29. better would be 9:30

3. as a general rule, I would always use exchange time for the session templates. in the case of cme, it would be central time.

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Old July 28th, 2014, 11:57 AM   #89 (permalink)
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Weekly Profile

Chart

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Indicator

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Old July 28th, 2014, 12:10 PM   #90 (permalink)
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Silvester17 View Post
this is a strange looking session template

3 things could be changed:

1. on sunday the market opens at 6:00 pm eastern time, not 4:30

2. the overnight session is missing 1 minute when you set "end time" to 9:29. better would be 9:30

3. as a general rule, I would always use exchange time for the session templates. in the case of cme, it would be central time.

Thanks

Comment 2 - there is no missing minute when running this real time. I've never tried running 9:30 as start and end time but the above certainly doesn't stop at 9:29 when using this real time.

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