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Sometime ago, I spent the better part of a week on the CME floor, generally
around the S&P pit. What I found were guys at desks with Globex terminals
doing exactly what the other respondants to your post mention.
Specifically, they watched the hand signals in the pit with one eye and
their Globex screen with the other, and when their "eyes" got out of line,
BAM! A quick quarter to half a point, about a risk-free as you could get.
And no, these guys were not playing onesie-twosie. One of the benefits of
"membership."
Also, one of my impressions was that one of the big games played around the
pits is "who's got size?" Cause if it becomes clear that Solly or Merrill
etc. is working a 1000 car order (whether they show it or not), it's
showtime --- spreads become more prevalent, providing food for the arbs.
I don't have a Globex terminal myself, but my recollection is that it is
possible to program them for placing spread orders (with one click), and if
so, that makes placing & executing pit/E-mini spreads about as efficient as
for naked positions --- one advantage in having a Globex terminal.
Ian Waugh wrote:
> In-Reply-To: <200204241826.g3OIQD8A019508@xxxxxxxxxxxxxxx>
> Ah... I had wondered about that but the prices move so quickly -
> especially the emini - that I wondered how it could be possible.
>
> So do the arbitragers wait for a certain spread - say half a point (I
> rarely see spreads this size for long) and then jump in? I've plotted
> the two the charts on top of each other and they are so close they could
> be twins! How do they guarantee getting a good fill on the emini?
>
> Is this just a game for the big boys?
>
> Cheers,
> Ian
>
> > > The S&P is open outcry and the S&P emini is electronically traded
> > > yet they usually manage to move together and stay within 0.25
> > > point of each other, even in fairly fast-moving markets. How come?
> >
> > Arbitrage. You can effectively exchange 5 ES's for 1 SP. So suppose
> > the SP is currently at 1234.00 and the ES is at 1234.50. You could
> > buy X SP's, sell 5*X ES's, and have a risk-free profit (after costs,
> > which are very low for the people/institutions doing this). You
> > could hold the long SP / short ES position until the spread moves the
> > other direction, at which time you exit both positions for another
> > risk-free profit. Even if you don't, I believe you can cancel out
> > the positions because they're basically the same thing, but I'm less
> > sure about that.
> >
> > Risk-free profit draws large money. Large money thrown at
> > aberrations like that tends to make the aberrations go away. Why?
> > Buying pressure on the SP makes it go up, selling pressure on the ES
> > makes it go down, and *poof* -- the spread between them vanishes.
> >
> > Gary
> >
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