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I think the daily range is a better measure of "reasonable spread"
than the notional value. It compares the spread volatility to the
market volatility, rather than to the market value. (I don't think
anyone would claim a 10pt spread was reasonable if the ND stayed at
its current price, but reverted to the 50-60pt daily ranges we saw
only 6 months ago. Said another way, would 7pt spreads have been
reasonable last October, when the ND was at 2500?)
With today's 175pt range, the bid-ask spread was nearly SIX PERCENT
of the entire daily range. That's horrific.
> 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.
Guess what. At today's close of 1440, one SP contract has a notional
value of precisely $360k too. By this logic, a FOUR-HANDLE SPREAD in
the S&P should be considered just peachy. I'm sure we'd all be quite
satisfied with that, no?
In my opinion, it's thinking like this that is going to drive the
business away from Chicago to the modern exchanges, like Eurex, where
they are more concerned with making a fair and equitable market.
Gary
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