Tuesday, December 16, 2014

Friday, November 21, 2014

Lost Decade (Japan)

"I know you think you understand what you thought I said, but not sure you realize,- what you heard is not what I meant!"
 -Allen Greenspan .
 
 
From Wikipedia, the free encyclopedia
   
The Lost Decade or the Lost 10 Years (失われた10年 Ushinawareta Jūnen?) is the time after the Japanese asset price bubble's collapse within the Japanese economy. The term originally referred to the years from 1991 to 2000,[1] but recently the decade from 2001 to 2010 is often included,[2] so that the whole period of the 1990s to the present is referred to as the Lost Two Decades or the Lost 20 Years (失われた20年, Ushinawareta Nijūnen). Over the period of 1995 to 2007, GDP fell from $5.33 to $4.36 trillion in nominal terms,[3] real wages fell around 5%,[4] while the country experienced a stagnant price level.[5] While there is some debate on the extent and measurement of Japan's setbacks,[6][7] the economic effect of the Lost Decade is well established and Japanese policymakers continue to grapple with its consequence.

Causes

Japan's strong economic growth in the second half of the 20th century ended abruptly at the start of the 1990s. In the late 1980s, abnormalities within the Japanese economic system had fueled a speculative asset price bubble of a massive scale. The cozy relationship between Japanese corporations and banking system meant that credit was easy to attain even when the investment lacked quality. As economist Paul Krugman explained, "Japan's banks lent more, with less regard for quality of the borrower, than anyone else's. In so doing they helped inflate the bubble economy to grotesque proportions."[8]
Trying to deflate speculation and keep inflation in check, the Bank of Japan sharply raised inter-bank lending rates in late 1989.[9] This sharp policy caused the bursting of the bubble and the Japanese stock market crashed. Equity and asset prices fell leaving overly leveraged Japanese banks and insurance companies with books full of bad debt. The financial institutions were bailed out through capital infusions from the government, loans and cheap credit from the central bank, and the ability to postpone the recognition of losses, ultimately turning them into zombie banks. Yalman Onaran of Bloomberg News writing in Salon stated that the zombie banks were one of the reasons for the following long stagnation.[10] Additionally Michael Schuman of Time magazine noted that these banks kept injecting new funds into unprofitable "zombie firms" to keep them afloat, arguing that they were too big to fail. However, most of these companies were too debt-ridden to do much more than survive on bail-out funds. Schuman believed that Japan's economy did not begin to recover until this practice had ended.[11]
Eventually, many of these failing firms became unsustainable, and a wave of consolidation took place, resulting in four national banks in Japan. Many Japanese firms were burdened with heavy debts, and it became very difficult to obtain credit. Many borrowers turned to sarakin (loan sharks) for loans. As of 2012, the official interest rate was 0.1%;[12] the interest rate has remained below 1% since 1994.[13]

Effects

Despite mild economic recovery in the 2000s, conspicuous consumption of the 1980s such as lavish spending on whiskey and cars has not returned to the same pre-crash levels.[14] Difficult times in the 1990s made people frown on ostentatious displays of wealth, while Japanese firms such as Toyota and Sony which had dominated the industry in the 1980s had to fend off strong competition from rival firms based in other East Asian countries — especially South Korea. Many Japanese companies replaced a large part of their workforce with temporary workers, who had little job security and fewer benefits. As of 2009, these non-traditional employees made up more than a third of the labor force.[15] And for the wider Japanese workforce, wages have stagnated. From their peak in 1997, real wages have since fallen around 13%[4] — an unprecedented number among developed nations.
The wider economy of Japan is still recovering from the impact of the 1991 crash and subsequent lost decades. It took 12 years for Japan's GDP to recover to the same levels as 1995, and in the interim Japan's economy shrank below those of France, Germany, Canada and the UK — even when those nations had weak decades themselves.[16] And as a greater sign of economic malaise, Japan also fell behind in output per capita. In 1991, real output per capita in Japan was 14% higher than Australia's, but in 2011 real output has dropped to 14% below Australia's levels.[16] In the span of 20 years, Japan's economy was overtaken not only in gross output, but labor efficiency, whereas previously it was a global leader in both.
In response to chronic deflation and low growth, Japan has attempted economic stimulus and thereby run a fiscal deficit since 1991.[17] These economic stimuli have had at best nebulous effects on the Japanese economy and have contributed to the huge debt burden on the Japanese government. Expressed as a percentage of the Japan's GDP, at 240% Japan has the highest level of debt of any nation on earth.[17] While Japan's is a special case where the majority of public debt is held in the domestic market and by the Bank of Japan, the sheer size the debt demands large service payments and is a worrying sign of the country's financial health.

Interpretation

Economist Paul Krugman has argued that Japan's lost decade is an example of a liquidity trap (a situation in which monetary policy is unable to lower nominal interest rates because these are close to zero). He explained how truly massive the asset bubble was in Japan by 1990, with a tripling of land and stock market prices during the prosperous 1980s. Japan's high personal savings rates, driven in part by the demographics of an aging population, enabled Japanese firms to rely heavily on traditional bank loans from supporting banking networks, as opposed to issuing stock or bonds via the capital markets to acquire funds. The cozy relationship of corporations to banks and the implicit guarantee of a taxpayer bailout of bank deposits created a significant moral hazard problem, leading to an atmosphere of crony capitalism and reduced lending standards. He wrote: "Japan's banks lent more, with less regard for quality of the borrower, than anyone else's. In so doing they helped inflate the bubble economy to grotesque proportions." The Bank of Japan began increasing interest rates in 1990 due in part to concerns over the bubble and in 1991 land and stock prices began a steep decline, within a few years reaching 60% below their peak.[8]
Economist Richard Koo wrote that Japan's "Great Recession" that began in 1990 was a "balance sheet recession". It was triggered by a collapse in land and stock prices, which caused Japanese firms to become insolvent, meaning their assets were worth less than their liabilities. Despite zero interest rates and expansion of the money supply to encourage borrowing, Japanese corporations in aggregate opted to pay down their debts from their own business earnings rather than borrow to invest as firms typically do. Corporate investment, a key demand component of GDP, fell enormously (22% of GDP) between 1990 and its peak decline in 2003. Japanese firms overall became net savers after 1998, as opposed to borrowers. Koo argues that it was massive fiscal stimulus (borrowing and spending by the government) that offset this decline and enabled Japan to maintain its level of GDP. In his view, this avoided a U.S. type Great Depression, in which U.S. GDP fell by 46%. He argued that monetary policy was ineffective because there was limited demand for funds while firms paid down their liabilities. In a balance sheet recession, GDP declines by the amount of debt repayment and un-borrowed individual savings, leaving government stimulus spending as the primary remedy.[18][19]
Economist Scott Sumner has argued that Japan's monetary policy was too tight during the Lost Decade and thus prolonged the pain felt by the Japanese economy.[20][21][22][23]
Economists Fumio Hayashi and Edward Prescott argue that the anemic performance of the Japanese economy since the early 1990s is mainly due to the low growth rate of aggregate productivity. Their hypothesis stands in direct contrast to popular explanations that are based in terms of an extended credit crunch that emerged in the aftermath of a bursting asset “bubble.” They are led to explore the implications of their hypothesis on the basis of evidence that suggests that despite the ongoing difficulties in the Japanese banking sector, desired capital expenditure was for the most part fully financed. They suggest that Japan’s sluggish investment activity is likely to be better understood in terms of low levels of desired capital expenditure and not in terms of credit constraints that prohibit firms from financing projects with positive net present value (NPV). Monetary or fiscal policies might increase consumption in the short run, but unless productivity growth increases, there is a legitimate fear that such a policy may simply transform Japan from a low-growth/low-inflation economy to a low-growth/high-inflation economy.
In her analysis of Japan's gradual path to economic success and then quick reversal, Jennifer Amyx noted that Japanese experts were not unaware of the possible causes of Japan's economic decline. Rather, to return Japan's economy back to the path to economic prosperity, policymakers would have had to adopt policies that would first cause short-term harm to the Japanese people and government.[24] Under this analysis, says Ian Lustick, Japan was stuck on a "local maximum," which it arrived at through gradual increases in its fitness level, set by the economic landscape of the 1970s and 80s. Without an accompanying change in institutional flexibility, Japan was unable to adapt to changing conditions and even though experts may have known which changes needed to be made, they would have been virtually powerless to enact those changes without instituting unpopular policies which would have been harmful in the short-term. Lustick's analysis is rooted in the application of evolutionary theory and natural selection to understanding institutional rigidity in the social sciences.[25]

Legacy

After the Great Recession from 2007-2009, Western governments and commentators have referenced the Lost Decade as a distinct economic possibility for stagnating developed nations. On February 9, 2009, in warning of the dire consequences facing the United States economy after its housing bubble, U.S. President Barack Obama cited the "lost decade" as a prospect the American economy faced.[26] And in 2010, Federal Reserve Bank of St. Louis President James Bullard warned that the United States was in danger of becoming "enmeshed in a Japanese-style deflationary outcome within the next several years."[27]
More than 23 years after the initial market crash, Japan is still feeling the effects of Lost Decade. However, several Japanese policymakers have attempted reforms to address the malaise in the Japanese economy. Recently, after Shinzo Abe was elected as Japanese prime minister in December 2012, Abe introduced a reform program known as Abenomics which addresses many of the issues raised by Japan's Lost Decade. His "three arrows" of reform intend to address Japan's chronically low inflation, decreasing worker productivity relative to other developed nations, and demographic issues raised by an aging population.[28] Investor response to the announced reform has been strong, and the Nikkei 225 has rallied to 16,000 from a low of around 9,000 in 2008. Abenomics seems to be taking its effect as initial economic indicators return to healthy levels — inflation is expected to meet the 2% target rate as set by the Bank of Japan.[29]


The Kingdom of Moltz


by Irwin Schiff

 
 

Sunday, November 2, 2014

Quantitative Easing



U.S.A.




B.O.J.






Video link below is worth watching for further Kyle Bass on B.O.E. and their QE as well as Argentina 


Hayman Global Outlook Pitfalls and Opportunities for 2014 

by Kyle Bass

https://www.youtube.com/watch?v=VBPZ58dzjfE




B.O.E.





Friday, October 31, 2014



FUN WITH SPX


We are long two contracts, of two overlapping verticals,
 left over from a previous trade with Two days of life left .
 
 1960 - 2010
and the
1960 -  2015
 
 
 
 
 
because there is only two days remaining and the first strike is already in the money we are wanting to lock gains in, while keeping some upside exposure.
 
 
What this order accomplishes is book gains from the vertical and create a small fly,
taking advantage from the already present ratio of -4x +2x
 
This Trade Brings in $10.55 x2
 
as the day progresses, we get a pull back and decide to work another order to improve the chances of the fly making any money.
 

1-3-2 adjustment x2 
 
This Trade Costs $1.00
 
 
 
Finish Day One, One day left.
 
Overnight news from BOJ causing gap up.
 
 
 
Finished Risk
 
 
Fin.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Thursday, October 30, 2014

Facebook FB


Implied Market Maker Move was suggesting 5.70-6.00 dollar move.

After missing most of TWTR for one cent the day previous, The intentions of getting more aggressive with pricing and using it as an insight for direction we entered this.



As time advances, we get slightly more aggressive by 0.02 cents and start getting hit on some fills.


We are hit on 44 of 50 before the closing bell fills are as follows.



Risk Graph

 
 
 
After earnings call, and the mention of future cost increases.
 
 
 
 
We were looking Golden when we went home, but over night it firmed up over our target area, causing us to hold the trade for an additional day .
 
 
 
EXITS are as follows.
 
 
 
 
 
MATH
 
Bot 44x at .29 Cent Debt = $1276.00
 
Sold 24x at .90 = $2160.00
 
Sold 19x at 1.00 = $1900.00
 
Sold 1x at 1.01 = 101.00
 
$ 1276.00 - $4161 = $2885.00 2 Day Play.
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Monday, October 27, 2014

TWTR



Front Month 4 day options implied volatility pumped early in the day to over 150.00



Within the final hour the inflated volatility starts to come in from 150.00 to 147.00 probing order sent to test prices as mid has gone from .20 debit to . 10 back to .15 probe order of .16s filled .15s working




 
 
 
 
 
Thank you

Friday, October 17, 2014

SPX FLY

Market is moving lower Volatility is rising.

Enter Broken Wing Butterfly

ORDER



RISK



Market Continues lower, spiking Volatility Even higher

Adjust ORDER


Adjusted RISK



SPX EXIT ORDER



Math

Bot 5x -!0x 5x BWB at $0.80 Cents = $400.00 Debit

Overlapping BWB to create Condor.

Bot 5x -10x 5X BWB at $3.20 = $1600.00 Debit NET NET $2000.00 Debit

EXIT ALL at $6.80 or $3400.00 = Gain $1400.00






Tuesday, October 14, 2014

XEO




XEO ENTRY



XEO RISK



XEO EXIT




Thursday, October 2, 2014

That's What Friends Are For  XEO

Actual trade discussion.

AK : Hey what are you trading today?

RD: I am working this butterfly in XEO do you want to join me, I have been sitting Mid all day with no fill.

AK : What order?

RD : I am working XEO butterfly at 2.00 debit    875-850-820

AK : Ok I will Join you..

TIME PASSES WE SIT BID ALL DAY ... as the market closes..

AK : I am FILLED.

RD : What the hell how is that possible?

AK : FILLED AT $2.05

RD : Thank you for cutting in front of me..

My order CANCELED




Following Day RESENT AT $1.80 FILLED




TWO DAYS LATER...
 
 
RD : Hey AK, are you still in that XEO Fly ..?
 
AK : YES, should we exit here.
 
RD : YES GET OUT.
 
AK : FILLED OUT AT 2.80
 
RD: Working and FILLED
 
 
 
ONE WEEK LATER...
 
 
RD : Hey AK, do you remember that XEO trade you carped my market on.
 
AK : YES haha good trade huh...?
 
RD : Are you out all the way ???
 
AK : YES
 
RD: I only closed 2/3s  =)
 



 


Tuesday, September 23, 2014



SPXPM




No Commentary Needed!  


 


VIX


Order Entry Trade Structure.

This can be thought of in one of two ways..

1) a combo (synthetic stock) with a protective put.

or

2) a Naked Call with a Credit put Vertical to reduce cost.

Order Entry




13 Strike Combo AKA synthetic stock, and protective ( Margin Reducing wing)

Bot at $1.25 on 9/18

Adjustment One on 9/23 (three trading days later)


Sold Leg of Credit spread Sold at .54 cents

Bot back at .35 debit. NET NET .18 cent gain.

Sold father OTM Call against already owned long Call at and additional $1.00 Credit.

NET RESULT long the Vix at .07 cents total outlay for the 13/17 Call spread which is already holding $1.28 intrinsic value if exited here, currently trading for $1.35 with extrinsic + intrinsic at current time of writing.

Following Day EXIT




Enjoy

Monday, September 22, 2014

Condor Addendum



We are coming into the day already LONG the 1990-1980 $10 wide SPXPM put spread.

We are looking for enhancements and going to walk through some basic Condor thinking.

Double click image for zoomed view.



The analysis page has two difference condors that at first glance are both priced the same i.e. $1.60 at the time of screen shot.

one wing 20 dollar wide, vs. one 10 dollar wide twice. both at even pricing.

Which to chose, and why?



There is a slight difference on the risk graph on both condors, with an educational underlying point to demonstrate.

Graph One.



VS.

Graph Two





One trade while, while similar margin has a slightly larger Risk graph meaning one trade contains a slightly better probability edge over the other. as show in the outer wing break even price comparison.  Trade two will go into max loss slightly before the other trade.

Also depending on where placed on the Probability Bell curve both trades will not stay at the exact same price with increase and decreases in volatility. 

With both, Time and Volatilities sensitivities will change, as they will NOT both price out the same forever.

While Qued up and monitored the spreads deviated as much as .20 between each other.





Also the inverse thinking should be applied while choosing a closer to the money vertical to make up the condor, I.E. its better to do twice as many spreads closer, compared to one larger spread, as its Max profit price would be slightly closer to the money, where as on the wing, a single wider spread benefits by pushing away the max loss point when compared to twice as many spreads done closer, if pricing allows for an even choice.

0.02







Wednesday, September 17, 2014


Multi- Month Futures Trade Structures

"Futures - Bundle (FB)

Bundle (FB) consists of 8 to 40 instruments within the same product group and with consecutive quarterly maturity months per block of 4. For instance, a 2-year bundle consists of 8 instruments, a 5-year bundle con­sists of 20 instruments, and a 10-year bundle consists of 40 instruments. Buy 1 bundle = buy 1 of each leg.  The maximum quantity for Bundles is 5000.
Products: Eurodollar Interest Rate
Construction: Buy1exp1  Buy1exp2  Buy1exp3  Buy1exp4  Buy1exp5  Buy1exp6 Buy1exp7  Buy1exp8...Buy1exp40
Security Description Example: GE:FB 02Y M8
Example: Buy the 2-year Bundle
Buy 1 June 2008 Eurodollar
Buy 1 Sept 2008 Eurodollar
Buy 1 December 2008 Eurodollar
Buy 1 March 2009 Eurodollar
Buy 1 June 2009 Eurodollar
Buy 1 Sept 2009 Eurodollar
Buy 1 December 2009 Eurodollar
Buy 1 March 2010 Eurodollar
Example: Sell the 2-year Bundle
Sell 1 June 2008 Eurodollar
Sell 1 Sept 2008 Eurodollar
Sell 1 December 2008 Eurodollar
Sell 1 March 2009 Eurodollar
Sell 1 June 2009 Eurodollar
Sell 1 Sept 2009 Eurodollar
Sell 1 December 2009 Eurodollar
Sell 1 March 2010 Eurodollar
 

Futures - Bundle Spread (BS)

Bundle-Spread (BS) consists of a calendar spread with each leg being a Bundle with different maturities. Buying 1 bundle spread = buying 1 bundle with closer maturity and selling 1 bundle with further maturity.
Bundle Spreads will have an equal number of legs on each leg of the bundle. For instance, a 2-year bundle can only be paired with a second 2-year bundle to create a bundle spread.
Common future legs between the two bundles are not allowed. For example, a June 2008 2-year bundle cannot be spread with a March 2010 2-year bundle, since this would result in a common leg of the March 2010 futures instrument between the two bundles.
June 2008 2-Year Bundle
March 2010 2-Year Bundle
Buy 1 June 2008 Eurodollar
Buy 1 March 2010 Eurodollar
Buy 1 September 2008 Eurodollar
Buy 1 June 2010 Eurodollar
Buy 1 December 2008 Eurodollar
Buy 1 September 2010 Eurodollar
Buy 1 March 2009 Eurodollar
Buy 1 December 2010 Eurodollar
Buy 1 June 2009 Eurodollar
Buy 1 March 2011 Eurodollar
Buy 1 September 2009 Eurodollar
Buy 1 June 2011 Eurodollar
Buy 1 December 2009 Eurodollar
Buy 1 September 2011 Eurodollar
Buy 1 March 2010 Eurodollar
Buy 1 December 2011 Eurodollar
Products: Eurodollar Interest Rate
Construction: Buy1(Bundle)exp1   Sell1(Bundle)exp2
Security Description Example: GE:BS 2YM8 2YM0
Example: Buy the Bundle
Buy 1 June 2008 Eurodollar Bundle
Sell 1 June 2010 Eurodollar Bundle
Example: Sell the Bundle
Sell 1 June 2008 Eurodollar Bundle
Buy 1 June 2010 Eurodollar Bundle
 

Futures - Butterfly (BF)

Butterfly (BF) consists of 3 instruments within the same product group and with equally distributed maturity months (e.g., M8-U8-Z8). Buy 1 butterfly = buy 1 of the closer maturity leg, sell 2 of the next maturity leg, and buy 1 of the furthest maturity leg (+1:-2:+1 ratio).
Products: Agriculture, Interest Rates, Equity Index
Construction: Buy1exp1  Sell2exp2  Buy1exp3
Security Description Example: GE:BFM8-U8-Z8
Example: Buy the Butterfly
Buy 1 June 2008 Eurodollar and
Sell 2 September 2008 Eurodollar and
Buy 1 December 2008 Eurodollar
Example: Sell the Butterfly
Sell 1 June 2008 Eurodollar and
Buy 2 September 2008 Eurodollar and
Sell 1 December 2008 Eurodollar
 

Futures - Calendar

A Calendar spread consists of 2 instruments with the same product with different maturity months. There are variations in Calendar spreads base on the product. Each Calendar spread variation is designated through the use of a different spread type code.
Icon
Not all CME Group futures spread markets follow the convention where Buying the Spread indicates Buying the front expiry and selling the back expiry. The following markets use the logic for calendar spreads where Buying the Spread sells the front expiry month and buys the back expiry month:
  • CME FX
  • Equity

Futures - Standard Calendar Spread (SP)

The standard calendar spread (SP) consists of 2 instruments within the same product group having different maturity months. Buy 1 calendar means Buy 1 front month leg and Sell 1 back month leg (+1:-1 ratio).
Products: All Products
Construction: Buy1exp1 Sell1exp2
Example: Buy the Spread
Buy 1 December 2008 Eurodollar
Sell 1 March 2009 Eurodollar
Security Description Example: GEZ8-GEH9
Example: Sell the Spread
Sell 1 December 2009 Eurodollar
Buy 1 March 2009 Eurodollar
Security Description Example: Selling 1 GEZ8-GEH

Futures - Equity Calendar Spread (EQ)

The Equities (EQ) calendar spread consists of 2 instruments within the same product group and with different maturity months. Buy 1 calendar = sell 1 front month leg and buy 1 back month leg, ( -1 : +1 ratio).
Products: Equity Index
Construction: Sell1exp1  Buy1exp2
Security Description Example: ESZ8-ESH9
Example: Buy the Spread
Sell 1 December  2008 e-mini S&P and
Buy 1 March 2009 e-mini S&P
Example: Sell the Spread
Buy 1 December 2008 e-mini S&P and
Sell 1 March 2009 e-mini S&P

Futures - Foreign Exchange Calendar Spread (FX)

Foreign Exchange (FX) consists of 2 instruments within the Foreign Exchange product group and with dif­ferent maturity months. Due to tick differences between the spread and the outright markets, FX Leg prices from Spread trades may be allowed at non-standard tick increments.
Products: Foreign Exchange (FX)
Construction: Buy1exp2  Sell1exp1
Security Description Example: 6EH9-6EZ8
Example: Buy the Spread
Buy 1 March 2009 CME EuroFX and
Sell 1 December  2008 CME EuroFX
Example: Sell the Spread
Sell 1 March 2009 EuroFX and
Buy 1 December 2008 EuroFX

The Goldman Sachs Commodity Index (GSCI) product, which is classified as an agricultural product, supports the Calendar spread FX strategy.
 

Futures - CME Europe Currency Calendar Spread (SD)

The CME Europe Futures Calendar Spread (SD) consists of 2 instruments within the same product group having different maturity months. The first leg has a later expiry than the back leg.
All currency spreads tick in reduced increments from the outright contract (e.g., a tick increment of 0.5 for the spread and 1.0 for the outright). 



The 10 major currency pairs are: EUR/USD, GBP/USD, EUR/GBP, USD/JPY, EUR/JPY, USD/CHF, EUR/CHF, USD/CAD, AUD/USD, and NZD/USD.
The following table summarizes the construction of the Futures Calendar Spreads.
Construction: Buy1exp2 Sell1exp1
Security Description Example: JPYH4-JPYZ3
Trading Convention
  • Listed in the order of Leg1 = Deferred Month and Leg2 = Nearby Month
  • Entering a Bid = Buy Leg2 and Sell Leg1
Products: CME Europe FX Futures
Construction:  Buy1exp2 Sell1exp1
Example: Buy the Spread
Buy 1 March 2014 JPY
Sell 1 December 2013 JPY
Example: Sell the Spread
Sell 1 March 2014 JPY
Buy 1 December 2013 JPY

Futures - Condor (CF)

Condor (CF) consist of 4 instruments within the same product group and with consecutive quarterly matu­rity months (e.g. Z8-H9-M9-U9). Buy 1 condor = buy 1 of the closer month leg, sell 1 of the next maturity leg, sell 1 of the next maturity leg, and buy 1 of the furthest maturity leg (+1:-1:-1:+1 ratio).
Products: Agriculture, Interest Rates
Construction: Buy1exp1  Sell1exp2  Sell1exp3  Buy1exp4
Security Description Example: GE:CFZ8H9M9U9
Example: Buy the Condor
Buy 1 December 2008 Eurodollar and
Sell 1 March 2009 Eurodollar and
Sell 1 June 2009 Eurodollar
Buy 1 September  2009 Eurodollar
Example: Sell the Condor
Sell 1 December 2008 Eurodollar and
Buy 1 March 2009 Eurodollar and
Buy 1 June 2009 Eurodollar
Sell 1 September  2009 Eurodollar
 

Futures - Crack One-One (C1)

The Crack One:One (C1) is unique to energy products and consists of 2 different products within the same product group and with the same maturity months. Buy 1 = buy 1 front month leg1 and sell 1 back month leg2 (+1:-1 ratio).
When buying the Crack spread, the user is buying the distilled product (Gasoline or Heating Oil) and sell­ing the Crude Oil. All Crack Spreads will be listed as "same month" instruments.
Products: NYMEX Products
Construction: Buy1exp1Distillate   Sell1exp1Crude
Security Description Example: CL:C1 HO-CL U8
Example: Buy the Spread
Buy 1 Sept 2008 Heating Oil
Sell 1 Sept 2008 Crude Oil
Example: Sell the Spread
Sell 1 Sept 2008 Heating Oil
Buy 1 Sept 2008 Crude Oil
 

Futures - Double Butterfly (DF)

The Double Butterfly (DF) spread is a "calendar" spread between two future butterfly strategies where one butterfly is bought and a deferred month butterfly is sold. The second and third leg of the first butterfly are identical to the first and second leg of the second butterfly.
The resulting strategy consists of positions in 4 equally distributed maturity months within the same product group consistent with the following pattern:
Buy 1 double butterfly = buy 1 of the closer maturity leg, sell 3 of the next maturity leg, buy 3 of the next maturity leg, sell 1 of the furthest maturity leg (e.g., Z7-H8-M8-U8).
Double Butterfly is equal to the price of Leg 1, minus the price of three Leg 2's, plus the price of three Leg 3s, minus the price of Leg 4.
Products: Eurodollar Interest Rate
Construction: Buy1exp1  Sell3exp2 Buy3exp3 Sell1exp4
Security Description Example: ES:DF Z8H9M9U9
Example: Buy the Spread
Buy 1 December 2008 Eurodollar
Sell 3 March 2009 Eurodollar
Buy 3 June 2009 Eurodollar
Sell 1 Sept 2009 Eurodollar
Example: Sell the Spread
Sell 1 December 2008 Eurodollar
Buy 3 March 2009 Eurodollar
Sell 3 June 2009 Eurodollar
Buy 1 Sept 2009 Eurodollar
 

Futures - TAS Calendar Spread (EC)

Products: NYMEX Products
Trade at Settlement (TAS) intra-commodity calendar spread in the nearby month/second month spread, the second month/third month spread, and the nearby month/third month.
Construction: Buy1exp1  Sell1exp2
Security Description Example: NNTX3-NNTF4
Example: Buy the Spread
Buy 1 April 2013 Henry Hub Natural Gas Last Day Financial TAS
Sell 1 May 2013 Henry Hub Natural Gas Last Day Financial TAS
Example: Sell the Spread
Sell 1 April 2013 Henry Hub Natural Gas Last Day Financial TAS
Buy 1 May 2013 Henry Hub Natural Gas Last Day Financial TAS
 

Futures - Inter-Commodity (IS)

Inter-commodity spreads (IS) consist of two futures instruments of different products. Tick increments must be the same value.
Construction: Buy1exp1com1  Sell1exp1com2
Security Description Example: GTBZ8-GEH9
Example: Buy the Spread
Buy 1 December 2008 13-week US Treasury Bill and
Sell 1 March 2009 Eurodollar
Example: Sell the Spread
Sell 1 December 2008 13-week US Treasury Bill and
Buy 1 March 2009 Eurodollar
 

Futures - Month Pack (MP)

Month-Pack (MP) consists of selling 1 pack with a later maturity and buying 4 outright instruments of the same instrument month with a maturity earlier than the front month of the pack.
The strategy is listed with the month code followed by a space, then the pack code. For example, GE:MP Z8 1YZ9 would represent 4 of the GEZ8 futures vs. the Z9 1-year Pack (GEH9, GEM9, GEU9, GEZ9)
Products: Eurodollar Interest Rate
Construction: Buy4exp1  Sell (Pack)1exp2
Security Description Example: GE:MP Z8 1YH9
Example: Buy the Spread
Buy 4 December 2008 Eurodollar Futures and
Sell 1 March 2009 Eurodollar Pack
Pack = March2009, June2009, Sept2009, Dec2009
Example: Sell the Spread
Sell 4 December 2008 Eurodollar Futures and
Buy 1 March 2009 Eurodollar Pack
Pack = March2009, June2009, Sept2009, Dec2009
 

Futures - Pack (PK)

Pack (PK) are the simultaneous purchase or sale of an equally weighted, consecutive series of four Euro­dollar futures, quoted on an average net change basis from the previous day's close.  The Pack Spread consists of 4 instruments with the same product group and consecutive quarterly maturity months (M8-U9-Z9-H9) with each leg (+1:+1:+1:+1 ratio).
Products: Eurodollar Interest Rate
Construction: Buy1exp1  Buy1exp2   Buy1exp3  Buy1exp4
Security Description Example: GE:PK 01Y M8
Example: Buy the Pack
Buy 1 June 2008 Eurodollar
Buy 1 Sept 2008 Eurodollar
Buy 1 Dec 2008 Eurodollar
Buy 1 March 2009 Eurodollar
Example: Sell the Pack
Sell 1 June 2008 Eurodollar       
Sell 1 Sept 2008 Eurodollar
Sell 1 Dec 2008 Eurodollar        
Sell 1 March 2009 Eurodollar
 

Futures - Pack Butterfly (BP)

Pack-Butterfly (PB) consists of a butterfly spread with each of the legs being a Pack. Buy 1 pack-butterfly = buy 1 of the closer maturity pack, sell 2 of the next maturity pack, and buy 1 of the furthest maturity pack.
Products: Eurodollar Interest Rate
Construction: Buy (Pack)1exp1  Sell (Pack)2exp2   Buy (Pack)1exp3
Security Description Example: GE:PB Z8-Z9-Z0
Example: Buy the Spread
Buy 1 December 2008 Eurodollar Pack
Sell 2 December 2009 Eurodollar Pack
Buy 1 December  2010 Eurodollar Pack
Example: Sell the Spread
Sell 1 December 2008 Eurodollar Pack
Buy 2 December 2009 Eurodollar Pack
Sell 1 December 2010 Eurodollar Pack

Futures - Pack Spread (PS)

Pack-Spread (PS) consists of a calendar spread with each leg being a Pack with different maturities. Buy 1 pack-spread = buy 1 closer maturity Pack, sell 1 further maturity Pack.
Products: Eurodollar Interest Rate
Construction: Buy (Pack)1exp1  Sell (Pack)1exp2
Security Description Example: GE:PS Z8-H9
Example: Buy the Spread
Buy 1 December 2008 Eurodollar Pack and
Sell 1 March 2009 Eurodollar Pack
Dec08 Pack = Dec2008, March2009, June2009, Sept2009
Mar09 Pack = March2009, June2009, Sept2009, Dec2009
Example: Sell the Spread
Sell 1 December 2008 Eurodollar Pack and
Buy 1 March 2009 Eurodollar Pack        
Dec08 Pack = Dec2008, March2009, June2009, Sept2009
Mar09 Pack = March2009, June2009, Sept2009, Dec2009
 

Futures - Reduced Tick (RT)

Reduced Tick (RT) allows a difference in tick size between the underlying instrument and the spread, where the underlying instrument trades at a larger tick size than the spread market.
Products:
  • 30-Year U.S. Treasury Bond Futures (ZB)
  • 10-Year U.S. Treasury Note Futures (ZN)
  • 5-Year U.S. Interest Rate Swap Futures (SA)
  • 10-Year U.S. Interest Rate Swap Futures (SR)
  • 30-Year Interest Rate Swap Futures (I3)
  • Silver 5,000 troy ounces (SI)
Construction: Buy1exp1  Sell1exp2
Security Description Example: ZBZ8-ZBH9
Example: Buy the Spread
Buy 1 December 2008 30-year US Treasury Bond and
Sell 1 March 2009 30-year US Treasury Bond
Example: Sell the Spread
Sell 1 December 2008 30-year US Treasury Bond and
Buy 1 March 2009 30-year US Treasury Bond
 

Futures - Strip (FS)

Strip Spread (FS) is the simultaneous purchase (or sale) of futures positions in consecutive months. The average of the prices for the futures instruments bought (or sold) is the price level of the hedge. A six-month strip, for example, consists of an equal number of futures instruments for each of six consecutive instrument months, also known as a calendar strip. The Strip Spread consists of 4 to 40 instruments within the same product group and with consecutive months. The ratios of the legs must equal 1.
Strips are constructed as buying a series of instruments simultaneously. Strips will tick in 1-tick increments. Strips can consist of any consecutive months between and including 2-Month Strips to 12-Month Strips.
Products: Agriculture, Interest Rates, FX, Metals
Construction: Buy1exp1  Buy1exp2  Buy1exp3  Buy1exp4
Security Description Example: CL:FS 04M U8
Example: Buy the Strip
Buy 1 September 2008 Crude Oil and
Buy 1 October 2008 Crude Oil and
Buy 1 November 2008 Crude Oil
Buy 1 December  2008 Crude Oil
Example: Sell the Strip
Sell 1 September 2008 Crude Oil and
Sell 1 October 2008 Crude Oil and
Sell1 November 2008 Crude Oil
Sell 1 December  2008 Crude Oil
 

Futures - Energy Strip (SA)

Energy Strip (SA) is the simultaneous purchase (or sale) of futures positions in consecutive months. The Energy Strip can consist of any consecutive contracts between and including 2-Month Strips to 12-Month Strips and can consist of any consecutive months between and including 2-Month Strips to 12-Month Strips.
Products: Natural Gas, Power
Construction: Buy1exp1  Buy1exp2  Buy1exp3
Security Description Example: GL:SA 03M N2
Example: Buy the 3-month GLStrip
Buy 1 July 2012 GL and
Buy 1 August 2012 GL and
Buy 1 September 2012 GL
Example: Sell the 3-month GL Strip
Sell 1 July 2012 GL and
Sell 1 August 2012 GL and
Sell 1 September 2012 GL

Futures - Balanced Strip (SB)

Balanced Strip (SB) is a spread between two strips of the same duration (e.g. 3 months) in the same product (Intra-commodity). Balanced Strips are constructed by buying the first expiring strip and selling the later expiring strip (Buy 1 stripExp1, Sell 1 stripExp2). The duration of each strip must be equal and consist of 2 strips having 2 through 12 legs for a total of 4 to 24 individual instruments in the given Balanced Strip. After the first month of the strip from the first leg of the Balanced Spread expires, the instrument becomes an Unbalanced Spread (see following topic).
Products: Natural Gas
Construction: Buy StripLeg1 Sell StripLeg2
Security Description Example: GL:SB 03M H2-U2
Example: Buy the Spread
Buy 1 March 2012 3Month Strip (GL:SA 3M H2) and
Sell 1 September 2012 3Month Strip (GL:SA 3M U2)

Futures - Unbalanced Strip (WS)

Unbalanced Strip (WS) is a spread between two strips in the same product (Intra-commodity), but with differing durations (to allow for spreads between Winter and Summer, etc.)  An Unbalanced Strip is constructed by buying the first expiring strip and selling the later expiring strip (Buy 1 stripExp1, Sell 1 stripExp2). The durations of each strip cannot be equal. The balance of the strip will continue to expire until only one expiration month remains.
Products: Natural Gas
Construction: Buy StripLeg1exp1  Sell StripLeg2exp2
Security Description Example: GL:WS X2-J3
Example: Buy the Spread
Buy 1 November 2012 5Month Strip (GL:SA 05M X2) and
Sell 1 April 2013 7Month Strip (GL:SA 07M J3)

Futures - Energy Inter-Commodity Strip (XS)

Energy Inter-commodity Strip (XS) is a spread between two related products, with the same durations. Inter-commodity Strips are constructed by buying a strip in one product and selling a strip in another product with equivalent duration and expiration (Buy 1 stripExp1Product1, Sell 1 stripExp1Product2). Each Energy Inter-commodity Strip must consist of 2 strips, each of which contains the identical number of months (3 through 12) for a total of 6 to 24 individual instruments in each Energy Inter-Commodity Strip. After the first month of the strip from the first leg of the Inter-commodity Strip expires, the leg becomes a “balance of” spread. The balance of the strip will continue to expire until only one expiration month remains.
Products: Natural Gas
Construction: Buy1Strip1(GL)exp1   Sell1Strip2(TC)exp1
Security Description Example: GU:XS 7M GL-TC J2
Example: Buy the Spread
Buy 1 April 2012 7Month Strip GL (GL:SA 07M J2) and
Sell 1 April 2012 7Month Strip TC (TC:SA 07MJ2)

Futures - Interest Rate Inter-Commodity Spread (DI)

Interest Rate inter-commodity implied spreads consist of two Interest Rate futures instruments of different products but the same maturity. The tick increments may be different.
Construction: Buy1exp1com1  Sell1exp1com2
Security Description Example: ZNH3-N1UH3
Example: Buy the Spread
Buy 1 March 2013 10-Year Treasury Note
Sell 1 March 2013 10-Yr USD Deliverable Interest Rate Swap Futures
Example: Sell the Spread
Sell 1 March 2013 10-Year Treasury Note
Buy 1 March 2013 10-Yr USD Deliverable Interest Rate Swap Futures

Futures - Implied Treasury Intercommodity Spread (IV)

Implied Treasury inter-commodity spreads consist of one Treasury futures instrument and one Interest Rate futures instrument having the same maturity.
Construction: Buy1exp1com1 Sell1exp1com2
Security Description Example: FOS 01-01 M3
Example: Buy the Spread
Buy 1 June 2013 5 year T-Note
Sell 1 June 2013 5-year Interest Rate Swap
Example: Sell the Spread
Sell 1 June 2013 5-year T-Note
Buy 1 June 2013 5-year Interest Rate Swap

Futures - Commodities Intercommodity Spread (SI)

This spread type, also known as the Soybean Crush, represents the price differential between the raw soybean product and the yield of its two processed products
Construction: Sell11exp1com1 Sell9exp1com2 Buy10exp1com3
Security Description Example: SOM:SI N4-N4-N4
Example: Buy the Spread
Sell 11 July Soybean Meal
Sell 9 July Soybean Oil
Buy 10 July Soybeans
Example: Sell the Spread
Buy 11 July Soybean Meal
Buy 9 July Soybean Oil
Sell 10 July Soybeans

Futures - BMD Futures Strip (MS)

The BMD futures strip consists of multiples of four consecutive, quarterly maturities of a single product with the legs having a +1:+1:+1:+1 ratio. A 1-year strip, for example, consists of an equal number of futures contracts for each of the four consecutive quarters nearest to expiration.
Construction: Buy1exp1  Buy1exp2  Buy1exp3 Buy1exp4
Security Description Example: FKB3:MS 01Y M8
Example: Buy the Spread
Buy 1 June 2018 3-Month Month Kuala Lumpur Interbank Offered Rate
Buy 1 September 2018 3-Month Month Kuala Lumpur Interbank Offered Rate
Buy 1 December 2018 3-Month Kuala Lumpur Interbank Offered Rate
Buy 1 March 2019 3-Month Kuala Lumpur Interbank Offered Rate
Example: Sell the Spread
Sell 1 June 2018 3-Month Month Kuala Lumpur Interbank Offered Rate
Sell 1 September 2018 3-Month Month Kuala Lumpur Interbank Offered Rate
Sell 1 December 2018 3-Month Kuala Lumpur Interbank Offered Rate
Sell 1 March 2019 3-Month Kuala Lumpur Interbank Offered Rate" - www.cme.com