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No, he's no beancounter, or he'd have known better than to compare apples
with oranges, or futures with options. A better comparison would have been
the ND vs. the S&P where the 27 basis points in his example would translate
into a spread in the S&P of some 4 handles. Now that would be something to
behold!
Spreadingly,
Andrew
----- Original Message -----
From: "Don Roos" <roos@xxxxxxxxxxxxxxx>
To: <omega-list@xxxxxxxxxx>
Sent: Wednesday, April 19, 2000 8:14 PM
Subject: Re: The ugliest rally...
> PS I forwarded some of the letters on this subject to the cme, so I
assume
> that is the reason they responded. I think the guy is a beancounter
rather
> than a trader.
>
> Don
>
> ----- Original Message -----
> From: "Don Roos" <roos@xxxxxxxxxxxxxxx>
> To: <omega-list@xxxxxxxxxx>
> Sent: Wednesday, April 19, 2000 7:08 PM
> Subject: Fw: The ugliest rally...
>
>
> > Here is the cme response to my note on floor traders in the nd, and the
> > exorbitant spread charged by them as well as the incredible margins for
> the
> > nd present at this time. Interpret it as you see fit.
> >
> > Don
> >
> > ----- Original Message -----
> > From: "David Lerman" <dlerman@xxxxxxx>
> > To: <roos@xxxxxxxxxxxxxxx>
> > Cc: <ronin@xxxxxxxxxxx>
> > Sent: Wednesday, April 19, 2000 3:23 PM
> > Subject: RE: The ugliest rally...
> >
> >
> > > Gentleman-sounds like you folks are a tad unhappy with conditions in
the
> > ND
> > > pit....
> > >
> > > I can't "disagree" with you, but lets assume that the ND bid/offer
> spread
> > > is indeed 10 points...
> > >
> > > At $100 per point that is $1000.00. The notional value of the
contract
> is
> > > roughly $360k. $1000 out of 360k is about 27 basis points. As part
of
> my
> > > job, I keep an eye on the markets. I watch bid offer spreads on lots
of
> > > instruments. I also noted the bid offer spreads on Thurday, Friday as
> > well
> > > as this past Monday and Tuesday (4/17 and 4/18). I also compared
these
> > bid
> > > offer spreads with those in the QQQ, the options on the QQQ, OEX ,
SPX,
> > NDX
> > > etc. When implied volatility reaches all time highs (which it did in
> the
> > > Nasdaq 100 options) of 70%, the "chaos" causes markets to react quite
> > > differently-as veteran traders (you folks sound like you have
> experience)
> > > you should know that all markets experienced wide bid offer spreads.
> Yes
> > > it is frustrating, but everytime we get big swings, markets widen, it
> > > happened in 87, 97, 98 and recently.
> > >
> > > As I said earlier, a 10 pt bid offer spread is high, but the 27 basis
> > > points compares well with other instruments. The QQQ bid offer was ?
to
> > > 1point and sometimes wider-figure the amount of QQQ needed to equal 1
ND
> > > contract and I think you'll find a favorable comparison. Options too
> had
> > > enormous bid offer spreads. None of this makes any trader happy. But
> it
> > > is a fact of life that volatile markets can sometimes be more
expensive.
> > >
> > > Regarding margins...just pretend for a second that you own an FCM.
> You've
> > > built a good business. Now a customer wants to trade ND futures. CME
> > > minimum performance bond is about $37,500. The daily changes of late
> have
> > > been in the range of $20,000 to $35,000-nearly the entire performance
> bond
> > > amount. The thing is swinging 5-10% regularly!! As an added protection
> > some
> > > firms choose to increase this performance bond for customers above the
> CME
> > > minimums. Yes it is a hinderance to trading for some, but it is
> > considered
> > > good risk management by some in the industry. Put yourself in their
> shoes
> > > for a second, and the "extra margin" haircut might make sense. As
> > > volatility decreases-and statistically speaking it should, markets
> should
> > > get cleaner, and performance bonds should decline.
> > >
> > >
> > >
> > >
> > > David Lerman
> > > Sr. Director
> > > Equity Index Products
> > > 312-648-3721
> > >
> > >
> > > -----Original Message-----
> > > From: Vietmeier, Brett
> > > Sent: Wednesday, April 19, 2000 11:02 AM
> > > To: Redding, Rick; Lerman, David
> > > Subject: FW: The ugliest rally...
> > >
> > >
> > > -----Original Message-----
> > > From: Don Roos [SMTP:roos@xxxxxxxxxxxxxxx]
> > > Sent: Wednesday, April 19, 2000 10:58 AM
> > > To: index@xxxxxxx
> > > Subject: Fw: The ugliest rally...
> > >
> > >
> > > ----- Original Message -----
> > > From: "Don Roos" <roos@xxxxxxxxxxxxxxx>
> > > To: "Andy" <ronin@xxxxxxxxxxx>
> > > Cc: <omega-list@xxxxxxxxxx>
> > > Sent: Wednesday, April 19, 2000 10:45 AM
> > > Subject: Re: The ugliest rally...
> > >
> > >
> > > > The most greedy and ugly piranah on the cme floor reside in the
nasdaq
> > > pit.
> > > > That market would be dead in the water if it were not for the
> liquidity
> > > > provided from arbitrage with the NQ mini. A 10 point spread to line
> the
> > > > pockets of the piranah is something that the cme should not
tolerate.
> I
> > > > welcome the time when the floor traders have to go upstairs and
> actually
> > > > compete with the rest of us instead of playing the ripoff game.
They
> > > might
> > > > find trading is a bit more difficult than their present game.
> > > >
> > > > Don
> > > >
> > > > ----- Original Message -----
> > > > From: "Andy" <ronin@xxxxxxxxxxx>
> > > > To: "Timothy Morge" <tmorge@xxxxxxxxxxxxxxx>; <frwd@xxxxxxxx>
> > > > Cc: "List, Omega" <omega-list@xxxxxxxxxx>
> > > > Sent: Wednesday, April 19, 2000 10:36 AM
> > > > Subject: Re: The ugliest rally...
> > > >
> > > >
> > > > > : My floor broker in the Nasdaq futures tells me that conditions
are
> > so
> > > > poor
> > > > > : today, he isn't even willing to trade for his own account. The
> > > off-floor
> > > > > : traders that normally trade 20-30 lots at a time are either
> trading
> > 5
> > > > lots
> > > > > or
> > > > > : smaller now or are off the entire week because their children
are
> > off
> > > > from
> > > > > : school until Monday. And the larger CTAs that normally are
always
> in
> > > the
> > > > > : markets have not been seen since last Thursday.
> > > > > :
> > > > > : It's very thin out there. Be careful if you choose to trade in
> these
> > > > > : conditions.
> > > > >
> > > > > Don't forget that some houses have raise the margin. CME's margin
> > > > > requirement is $38K for initial for ND while Refco/LFG and EDF
Mann
> > > > requires
> > > > > $60K per contract for initial, $48K for maintenance. And then
forget
> > > the
> > > > 10
> > > > > point spread between the bid and ask, as well as it's only good
for
> 10
> > > > > contracts. I know that the ND's have always been thin but this is
> > > > > ridiculous.
> > > > >
> > > > >
> > > >
> > > >
> > >
> > >
> >
> >
>
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