23 lines
2.1 KiB
Plaintext
23 lines
2.1 KiB
Plaintext
464A CoMPLETE GuIdE To THE FuTuRES MARKET
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spreads. Again, to trade these types of spreads as price ratios, the spreads would be implemented so
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the contract values of each side are approximately equal, a condition that will be achieved when the
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contract ratio between the indexes is equal to the inverse of the contract value ratio.
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Figures 32.1 through 32.6 illustrate the contract value ratios for these six spread pairs during
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2002–2015. In some cases, such as the S&P 500/dow spread, the contract value ratio does not vary
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much. As can be seen in Figure 32.1 , the contract value ratio for this pair ranged by a factor of only
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about 1.2 from low to high over the entire period. For other index pairs, however, the contract value
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ratio ranged widely. For example, Figure 32.4 shows that during the same period, the high Nasdaq/
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dow contract value ratio was nearly 2.5 times the low ratio. Since the contract ratio required to keep
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the trade neutral to equal percentage price changes in both markets is equal to the inverse of the
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prevailing contract value ratio, the appropriate contract ratio for these spreads can range widely over
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time. For example, for the aforementioned Nasdaq 100/dow ratio, a three-contract dow position
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would have been balanced by a seven-contract Nasdaq position when the contract value ratio was at
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its low versus only a three-contract position (rounding up) when the ratio was at its high.
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Figures 32.7 through 32.12 illustrate the price ratios for the six stock index pairs during the same
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period, along with an overlay of one of the indexes to facilitate visually checking of the relationships
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between the index price ratio and the overall stock market direction. Note that the price ratios
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in Figures 32.7 through 32.12 are identical in pattern to the contract value ratios in Figures 32.1
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through 32.6 , which is a consequence of the contract value ratio being equal to the price ratio times
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a constant—the constant being equal to the ratio of the multipliers for the indexes.
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FIGURE 32.1 Contract Value Ratio: S&P 500/dow E-Mini Futures
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