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Hi,
I am currently market making the DAX.
I started market making with the DOW, but the DAX so outperformed the DOW
in percentage terms, I switched, in stages, buying back the short DOW
positions, to replace them with short DAX positions. A switch
made by adding a spread, providing service where most demanded.
A couple of days later, the DAX fell more heavily than the DOW and I
switched back, at a net 50 point advantage on the DOW from my original
position - again going where the service was greatest.
I have learnt to do this kind of switching between related markets from a
client.
Since then I have gone back to the DAX.
But I have just formalised a differing kind of switch that previously I
had just lightly investigated and only experimented with on paper and for
some reason ignored.
Still short of the DAX, I noticed that it had risen about 60 while the
FTSE had fallen.
So instead of buying back the DAX into falls on the way up, I bought the
FTSE instead.
This is equivalent to buying the long FTSE, short DAX spread for the
amount of the DAX.
Today, the DAX is down and the FTSE up, so my decision to go where the
demand was higher for buyers (the FTSE) has added about 33% to the
volatility profits I would otherwise have made by buying back the DAX
yesterday.
Most satisfying - almost made yesterday an average day.
If the FTSE continues to move relative to the DAX, and the DAX rises on
the way down or just goes up, so I would have sold the DAX, I will sell
the FTSE instead to consolidate my advantage and this advantage will
accrue irrespective of whether I make a profit on the FTSE trades or
not.
Opportunity is everywhere if you have a service mind-set, a balanced
capital and revenue outlook and your ego does not require instant
profits.
Regards, Ric.
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