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Arbitrage

e-Learning with the TradingMasteryHub - Sentiment Analysis**🚀 Welcome to the TradingMasteryHub Education Series! 📚** Are you looking to level up your trading game? Join us for the next 10 lessons as we dive deep into essential trading concepts that will help you grow your knowledge and sharpen your skills. Whether you're a beginner or looking to refine your strategy, these lessons are designed to guide you on your journey to better understand the markets. **📊 What is Sentiment Analysis?** Sentiment analysis gauges the mood of market participants towards an asset or the entire market. By analyzing news, social media, and financial reports, you can determine whether the sentiment is bullish, bearish, or neutral, helping you anticipate market moves. **👥 Who Are the Most Important Market Participants?** The market is shaped by various players: Retail traders, institutional investors, market makers, central banks, high-frequency traders, and arbitrageurs. Each plays a crucial role in price movements and market efficiency. **📈 Why Does Sentiment Matter?** Sentiment drives market behavior. Understanding it allows you to anticipate trends, avoid potential pitfalls, and make informed decisions before significant market moves. **🔍 How to Read the Market Sentiment?** Analyze news headlines, social media, market indices like the VIX, and sentiment indicators like the Put/Call Ratio to get a comprehensive view of market sentiment. **🎯 The Right Indicator** Selecting the right sentiment indicator depends on your trading focus. Use tools like the Bullish Percent Index, AAII Sentiment Survey, and VIX to gain deeper insights. --> ❤️ I love the sentiment indicator by Dreatblitz: Bull Bear Power Trend (BBPT) - I use it to find divergences in price and emotional trends. **👍 Pros and Cons of Sentiment Analysis** **Pros:** Anticipate market moves, identify overbought/oversold conditions, and complement other analyses. **Cons:** It can be subjective, rapidly change, and sometimes lead to irrational market behavior. **🔚 Conclusion and Recommendation** Sentiment analysis is a powerful tool in your trading arsenal. Combine it with technical and fundamental analysis for the best results, and always prioritize risk management. With practice, you'll become adept at reading market sentiment and using it to your advantage. **🔥 Can’t get enough? Don't Miss Out!** Subscribe, share, and engage with us in the comments. This is the start of a supportive trading community—built by traders, for traders! 🚀 Join us on the journey to market mastery, where we grow, learn, and succeed together. 💪 **💡 What You'll Learn:** - The fundamentals of trading - Key technical and sentiment indicators - Risk management strategies - And much more!... Best wishes, TradingMasteryHub
OANDA:WTICOUSDEducation
by TradingMasteryHub
Options Blueprint Series: Secure Interest Rates with Box SpreadsIntroduction The E-mini S&P 500 Futures is a popular and widely traded derivative product. These futures are used by traders and investors to hedge their portfolios, gain market exposure, and manage risk. The Options Box Strategy is an advanced options trading technique that involves creating a synthetic long position and a synthetic short position simultaneously. This strategy is designed to lock in interest rates and profit from price discrepancies, essentially securing a risk-free return through arbitrage. By using Box Spreads, traders can secure interest rates and achieve a potential arbitrage opportunity in a controlled and predictable manner. An interesting application of the Box Spread strategy is using unutilized capital in a trading account. Traders can earn a risk-free return on idle cash by deploying it in Box Spreads. This approach maximizes the utility of available capital, providing an additional revenue stream without increasing market risk exposure, thus enhancing overall portfolio performance. E-mini S&P 500 Futures Contract Specifications: Contract Size: $50 times the S&P 500 Index Minimum Tick Size: 0.25 index points, equal to $12.50 per contract Trading Hours: Nearly 24 hours a day, five days a week Margin Requirement: $11,800 at the time of publishing this article Micro E-minis: 10 times smaller than the E-minis Understanding Box Spreads A Box Spread is a sophisticated options strategy that involves simultaneously entering a long call and short put at one strike price and a long put and short call at another strike price. Components of a Box Spread: Long Call: Buying a call option at a specific strike price. Short Put: Selling a put option at the same strike price as the long call. Long Put: Buying a put option at a different strike price. Short Call: Selling a call option at the same strike price as the long put. How Box Spreads Secure Interest Rates: Box Spreads are designed to exploit mispricings between the synthetic long and short positions. By locking in these positions, traders can secure interest rates as the net result of the Box Spread should theoretically yield a risk-free return. This strategy is particularly useful in stable market conditions where interest rate fluctuations can impact the profitability of other trading strategies. Advantages of Using Box Spreads: Arbitrage Opportunities: Box Spreads allow traders to capitalize on discrepancies in the pricing of options, securing a risk-free profit. Predictable Returns: The strategy locks in a fixed rate of return, providing certainty and stability. Risk Management: By simultaneously holding synthetic long and short positions, the risk is minimized, making it an effective strategy for conservative traders. Applying Box Spreads on E-mini S&P 500 Futures To apply the Box Spread strategy on E-mini S&P 500 Futures, follow the following step-by-step approach. Step-by-Step: 1. Identify Strike Prices: Choose two strike prices for the options. For instance, select a lower strike price (LK) and a higher strike price (HK). 2. Enter Long Call and Short Put: Buy a call option at the lower strike price (K1). Sell a put option at the same lower strike price (K1). 3. Enter Long Put and Short Call: Buy a put option at the higher strike price (K2). Sell a call option at the same higher strike price (K2). Potential Outcomes and Rate Security: The Box Spread locks in a risk-free return by exploiting price discrepancies. The profit is determined by the difference between the strike prices minus the net premium paid. In stable market conditions, this strategy provides a predictable and secure return, effectively locking in interest rates. Advantages of Applying Box Spreads: Risk-Free Arbitrage: The primary benefit is securing a risk-free profit through arbitrage. Predictable Returns: Provides a fixed return, beneficial for conservative traders. Minimal Risk: By holding both synthetic long and short positions, market risk is mitigated. Considerations: Ensure precise execution to avoid slippage and maximize the arbitrage opportunity. Account for transaction costs, as they can impact the overall profitability. Monitor market conditions to ensure the strategy remains effective. Example Trade Setup: Let's consider a practical example of setting up a Box Spread on the E-mini S&P 500 Futures while its current trading price is 5,531. We'll use the following strike prices: Lower Strike Price (K1): 5450 Higher Strike Price (K2): 5650 Transactions: Sell Call at 5650: Premium = 240.01 Buy Put at 5650: Premium = 352.85 Sell Put at 5450: Premium = 270.59 Buy Call at 5450: Premium = 347.39 Note: We are using the CME Group Options Calculator in order to generate fair value prices and Greeks for any options on futures contracts. Net Premium Calculation: Net premium paid = 347.39 - 240.01 + 352.85 - 270.59 = 189.64 Potential Profit Calculation: Profit = (Higher Strike Price - Lower Strike Price) - Net Premium Paid Profit = 5650 – 5450 – 189.64 = 10.36 points = $518 ($50 per point) Rate Of Return (ROR) Calculation: Margin Requirement = (Higher Strike Price - Lower Strike Price) × Contract Multiplier = 200 x 50 = $10,000 ROR = 518 / 10000 = 5.18% Annualized ROR = 518 / 10000 x 365.25 / 383 = 4.94% (based on the screenshots, expiration will take place in 383.03 days while a year is made of 365.25 days) Interesting Application: Utilizing Box Spreads with Unutilized Capital An intriguing application of the Box Spread strategy is the use of unutilized capital in a trading account. Traders often have idle cash in their accounts that isn't actively engaged in trading. By deploying this capital in Box Spreads, traders can earn a risk-free return on otherwise dormant funds. This approach not only maximizes the utility of available capital but also provides an additional revenue stream without increasing market risk exposure. Utilizing Box Spreads in this manner can enhance overall portfolio performance, making efficient use of all available resources. Importance of Risk Management Risk management is a critical aspect of any trading strategy, including the implementation of Box Spreads on E-mini S&P 500 Futures. Effective risk management ensures that traders can mitigate potential losses and protect their capital, leading to more consistent and sustainable trading performance. Conclusion Implementing the Options Box Strategy on E-mini S&P 500 Futures may allow traders to secure interest rates and potentially achieve risk-free arbitrage opportunities. By understanding the mechanics of Box Spreads and applying them effectively, traders can capitalize on price discrepancies in the options market to lock in predictable returns. Key points to remember include: E-mini S&P 500 Futures offer accessible and efficient trading opportunities for both hedging and speculative purposes. Box Spreads combine synthetic long and short positions, providing a powerful tool for securing interest rates through arbitrage. By following the outlined steps and leveraging classical technical indicators, traders can enhance their ability to set up and analyze Box Spreads, making the most of this advanced options strategy. Utilizing Box Spreads on E-mini S&P 500 Futures not only can secure interest rates but can also provide a structured and disciplined approach to trading, leading to more consistent and sustainable trading performance. When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies. General Disclaimer: The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
CME_MINI:ES1!Education
by traddictiv
HSBC "Amazing Opportunity"After the UK CPI came hotter than expected, short positions are shining on the horizon. The UK100(FTSE) index looks over-extended to the bullish side, but better than shorting the index itself is finding a highly correlated with the index position, which in our case is HSBC. As you can see the periods in the past are marked with verticals, whenever the index corrects HSBC follows. Currently, the level at which the stock price is sitting is at a weekly resistance zone. Most traders who are only attracted to the risk-to-reward ratio would most likely skip such an amazing opportunity. Here comes the options. I am not going to short the stock itself but rather buy put options. To be even more specific I am buying puts at 44$ which costs 0.50$ for the 21st of June. Long story short with 3000$ dollars you can buy 60 puts. At 40$ your puts will be worth ~12,000$ or slightly more due to the premium. You may say But what if it goes up and I lose my 3K, but that's not the case here. The moment I am buying the puts I am buying 1000 shares long. At 43$ my stock shares will be exactly 3K$ profit so my initial investment is fully covered on top of that I can still sell my put options even though they will be worth around 0.10$ but still possibly +600$. To keep it simple: At 40$ your 60puts will be worth 12,000$. 12,000$- 3,000$(cost of puts) - 1000shares*-4.30(4300) so we will have net profit of +4,700$ The potential win versus the initial investment may seem as unfavourable but keep in mind we are making an arbitrage trade here and the chance of losing capital is close to zero. The ATR (Average True Range), which represents the average movement of an instrument for HSBC is 1.65$ on a weekly basis. This means that the 5 weeks we have until the strike of the option we can easily expect 4-5$ to move in either direction. On top of that, we have NVIDIA reporting Q1 aftermarket, which will set the tone for the markets for the rest of the week. Every comment gets answered:) Before you jump on this financial rollercoaster, remember: past performance is like your ex's mixtape—nostalgic but not always relevant! 🎢💸 Always consult with a financial advisor before you trade your lunch money for stock options.
NYSE:HSBCShort
by Elite_Forex
ARB after the pullback will go up to the next resistance zone ARB after the pullback will go up to the next resistance zone. The buy zone is around the trendline 🔵Entry Zone 1.8222 - 1.8918 🔴SL 1.6664 🟢TP1 1.9698 🟢TP2 2.1468 🟢TP3 2.2698 Risk Warning Trading Forex, CFDs, Crypto, Futures, and Stocks involve a risk of loss. Please consider carefully if such trading is appropriate for you. Past performance is not indicative of future results. If you liked our ideas, please support us with your likes 👍 and comments.
Long
by JosephMcKenzie
Arbitrage of cryptocurrencies using indicators Many have heard about P2P cryptocurrency arbitrage using bank cards and exchangers. With this, there are a number of problems and risks associated with blocking accounts, freezing money indefinitely or blocking accounts on the exchanges, since in order to effectively engage in this type of arbitration a trader must have not only his personal cards, but also drop cards (relatives, friends, etc.), and in the case of If there are any problems it becomes extremely difficult to solve them, as well as to explain to banks the origin of so many transfers from different persons. The interexchange arbitration of cryptocurrencies is devoid of all these disadvantages, when transactions are made only on exchanges, and coins are sent only between exchanges and no third-party services, exchangers, P2P platforms and banks participate in the process of such arbitration. How do I find and track such arbitration situations? – situations when the exchange rate for a certain asset on one exchange is lower than on another. This will be helped by a set of indicators that track exchange rate differences for the selected asset on different exchanges. Using these indicators a trader can track how the size of the spread (exchange rate difference) has changed over time, what were the extreme values of this spread and how often it occurs at all. Currently, there are three versions of this indicator. 1️⃣ The first version – the lightest in terms of the load on the hardware – allows you to track arbitrage situations for one selected trading pair. It provides a chart of the spread itself, the definition of extreme spread values, as well as a counter for the number of arbitrage situations in three time intervals. 2️⃣ The second version of the indicator has the same functionality on board, but for three trading pairs. That is, using one indicator you can track the spread on three assets at the same time. 3️⃣ The third version is essentially an arbitrage dashboard showing and tracking 12 trading pairs at the same time. As the authors of these indicators and arbitrage screeners, we use a combination of the 2nd and 3rd versions of the indicator in our work. If this is too heavy for your system you can use the 1st and 3rd, or some one. In the large dashboard version (3rd), we track 12 of the most interesting assets at a time, and in the version with the spread chart (1st or 2nd), we are already looking at a more detailed picture of those of them that are of the greatest interest for further work. What else? In all the presented indicators, you can configure: ✅ threshold values at which additional tinting of the spread chart will occur for a better visual representation of the nature of the movement. ✅ threshold values at which the spread value in its extreme values will be displayed on the chart. Since the charts are located in TradingView price zones other than the actual spread values, this option allows you to quickly understand the real historical spread values that were in the past. ✅ threshold values at which alerts from the indicator will be received through the built-in TradingView alerts function. All you need to do is set the threshold value in the indicator, and then add an alert from the indicator in the TradingView alert settings. It is important to understand that the threshold value for all trading pairs selected in the indicator is the same, so alerts will be sent as soon as the spread value exceeds the threshold value for any of them. ✅ time intervals of the counter for the number of arbitration situations. There are three of them. That is, when analyzing a particular trading pair you can see how many times the spread value exceeded the threshold. For example, in the last 5 minutes, an hour and a day. This will give an understanding of the prospects of tracking the selected trading pair in the future. All that remains to be done is to buy the coin at the price indicated in the Buy row on the corresponding exchange and sell it at the price from the Sell row on the second exchange.
by ArbyTrade
Extracting Arbitrage Yields In Bitcoin Carry TradeBitcoin is known as digital gold. It is treasured as an investment asset. Much like the famous yellow metal, bitcoin (“BTC”) does not offer income through dividends or interest. This poses a challenge for investors seeking regular cashflows and income. One strategy that skilled investors use to turn BTC into an income generating asset is the cash and carry trade (“carry trade”). This paper describes mechanics of carry trade and the attendant risks. It also highlights that the introduction of spot ETFs has created a secure infrastructure for harvesting carry yields using a regulated platforms such as the CME. INTRODUCTION TO THE CARRY TRADE The carry trade is an arbitrage strategy that benefits from the differences in futures and spot price of an asset. It is a delta neutral strategy. In other words, the returns are not price dependent once the carry trade is profitably set up. To illustrate, consider the forward curve of CME Bitcoin futures which shows futures prices at different expiries. Bitcoin futures with later expiries trade at a premium to near term ones and this type of market structure is referred to as contango. In a trade that involves simultaneous acquisition of BTC and selling a BTC futures contract expiring later, investors can lock in the price difference as profits. Once established, this trade’s profit is unaffected by price moves enabling investors to harvest carry yield at the futures expiry. The pay-off from this trade is driven by convergence of futures and spot prices. Convergence is the movement of a futures price closer to spot price at expiry. Once futures and spot price are sufficiently close, the trade can be unwound by simultaneously exiting both positions. For CME Bitcoin and Micro Bitcoin futures, convergence occurs because the futures contracts settle to a robust price benchmark known as the CF Bitcoin Reference Rate (“BRR”) which includes price quotes from major crypto exchanges. BTC FUTURES CONTANGO TERM STRUCTURE AND PREVALANCE OF CARRY TRADE Carry trades can be executed in both contango and backwardation term structures. While the carry trade can technically be executed in backwardation (where later expiries are cheaper), doing so involves high borrowing costs for the short spot leg. Hence, BTC’s contango term structure is beneficial for extracting arbitrage yields from carry trade. Factors driving BTC contango term structure are multi-faceted. Simply put, during bull runs, investors anticipate higher prices for contracts maturing later. Furthermore, high demand for spot BTC and limited availability on the sell-side can exacerbate forward premiums. Additional factors resulting in contango include cost of funds, insurance premiums, and custodial charges that are higher for later expiries, and a convenience yield of holding BTC. Convenience yield represents returns from holding BTC through activities such as lending. BTC futures term structure has shown both contango and backwardation during different periods. Current term structure indicates bullish sentiment fuelled by spot BTC approval in January and the next halving event expected in April. Term structure shifts can result in outsized returns at times. Notably, the switch from contango to backwardation can offer outsized returns on the carry trade, exceeding the difference between futures and spot price as observed at trade inception. The carry trade has been a popular strategy, especially during periods of significant volatility and during bull markets when BTC contango structure widens. Even sell-offs provide compelling trading opportunities as the carry trade is directionally neutral. Carry trades have lower risk relative to an outright long position. For reference , during 2021, LedgerPrime’s quant fund was able to beat BTC returns using, among others, the carry trade during a large selloff. RISKS OF THE CARRY TRADE The carry trade neutralises market risk but is still subject to counterparty risks and liquidity risks when spreads diverge and tear. Largest risk factors associated with the carry trade is the counterparty risk . While CME futures are regulated by the CFTC, spot crypto exchanges are not subject to similar regulations. This poses significant risk for investors if they opt to hold their BTC on such unregulated exchanges. Such risks arising from trading on unregulated platforms is most exemplified by the collapse of FTX. FTX was a popular exchange for executing carry trades as it offered dated futures, perps, and spot BTC on its platform. The dramatic collapse of FTX highlighted counterparty risk as a major concern. Self-custody of spot BTC has its own risks including transfer costs and cybersecurity risks. Another risk factor is early liquidation. As the futures leg of the trade is a short position, where prices rally sharply, the short position may be at risk of liquidation despite a proportional gain on the long leg of the carry trade. SPOT BTC ETF HELPS REDUCE COUNTERPARTY RISKS The rollout of spot BTC ETFs reduces counterparty risk. Unlike unregulated crypto exchanges, spot ETFs are regulated by the SEC, listed on regulated exchanges with investor protection. With both the futures and spot leg now available through regulated platforms, investors have access to secure infrastructure for executing the carry trade. The table below provides details of approved spot ETFs including AUM, expense ratio, and the benchmark index. Carry trade using spot ETFs with CME CF Bitcoin Reference Rate (CME BRR) enables greater precision in extracting arbitrage yields. Seven of the eleven approved spot BTC ETFs use the CME BRR. Still, there are downside to using spot ETFs for long BTC exposure in carry trades. For one, ETFs are only tradeable during market hours (9:30AM to 4:00PM US Eastern Time not including extended trading hours) whereas cryptocurrency exchanges and even CME futures trade for longer hours. Moreover, expense ratios and premium/discount to NAV for ETFs will erode already thin profits. Spot BTC ETFs are currently offering discounts on expense ratio for a fixed period. CARRY TRADE ILLUSTRATION To illustrate a hypothetical carry trade, consider the following setup comprising long BITB ETF and short CME Bitcoin futures (BTCH2024). BITB references the same CME CF Bitcoin Reference Rate as CME futures and its premium/discount of -0.07% (as of 09/Feb) offers a beneficial entry point for this trade. Moreover, the premium/discount on the ETF has been tight. Source: Bitwise The premium for MBTH2024 over spot reference rate as of close on 9/Feb was 2.83%. Taking seven basis point discount to NAV, this results in total return of 2.90% over 48 days resulting in an annualized arbitrage return of 22%. As the trade is required to be directionally neutral, notional value on both legs needs to be balanced. CME Micro Bitcoin futures (“MBT”) offers exposure to 0.1 BTC. Notional on short BTCH2024 futures leg: 0.1 BTC As of close 09/Feb, BITB market price: USD 25.95 CME CF Benchmark BTC price: USD 47,614 Each share of BITB offers exposure to 0.000545 BTC 184 shares of BITB provide exposure to 0.000545 x 184 = 0.100280 BTC The payoff from the trade consisting of 184 x long BITB and 1 x short MBTH2024 would be 2.9% of notional value = 2.9% x (0.1 x 47,614 USD/BTC) = USD 138. The trade requires margin of USD 980 on the short futures leg and notional of USD 4,775 on the long leg for a total capital requirement of USD 5,755 (as of Feb 2023) which translates into ROI of 2.4%. Still, as mentioned, liquidation risk remains a concern. Hence, it is prudent to maintain higher margin on the short futures leg which would lower the ROI. Note that timing this trade better can improve the odds and in case Bitcoin’s term structure switches from contango to backwardation, payoff would be higher. MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
CME:BTC2!Education
by mintdotfinance