Packs Arbitrage
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The document discusses various strategies for hedging and exiting positions in packs (bundles of futures contracts) using outright futures contracts. It provides examples of hedging a long pack position by selling one, two, three, or four outright contracts. It also discusses strategies for exiting the position by trading calendars spreads between different expiration dates. The strategies allow traders to manage risk and exit pack positions in a structured way using liquid outright and spread products.
Packs Arbitrage
- 2. PACK VERSUS OUTRIGHT The excel snapshot is how to hedge a pack (long) with an ED1 ED2 ED3 ED4 outright (4 * short leg2) and how to hedge to flat the position. you LEG1 LEG2 LEG3 LEG4 can use this method to either exit from a pack, or you can price the TRADE 1 1 1 1 1 whole package together as a unit. Either way it’s a bonefied method TRADE 2 -4 to make good money. I will send each example, as each outright TRADE 3 -1 2 -1 creates different strategies. So if TRADE 4 1 -1 you buy the pack (whatever pack) and you sell the second outright. you are flat outright exposure. To exit the remaining position, you need to sell 1 unit of the ed1/ed2/ed3 butterfly (on jbus and liquid) and buy 1 unit of the ed2/ed4 6mth calendar (on jbus and liquid) NET 0 0 0 0
- 3. PACK versus Outright Opposite you have ED1 ED2 ED3 ED4 the pack (long) LEG1 LEG2 LEG3 LEG4 versus 1 st TRADE 1 1 1 1 1 (outright) short. To TRADE 2 -4 TRADE 3 1 -1 exit you buy 1 TRADE 4 1 -1 ed1/ed4, buy 1 TRADE 5 1 -1 ed1/ed3 and buy 1 ed1/ed2. again all liquid products quoted on JBUS. NET 0 0 0 0
- 4. PACK versus Outright Opposite you have ED1 ED2 ED3 ED4 pack (long) versus LEG1 LEG2 LEG3 LEG4 3rd outright (short). TRADE 1 1 1 1 1 To exit you trade TRADE 2 -4 TRADE 3 -1 2 -1 the following. Sell TRADE 4 -1 1 1 ed2/ed3/ed4 TRADE 5 butterfly. And sell 1 ed1/ed3. all these are liquid. NET 0 0 0 0
- 5. PACK versus OUTRIGHT Opposite is the ED1 ED2 ED3 ED4 pack (long) versus LEG1 LEG2 LEG3 LEG4 4th Outright (short). TRADE 1 1 1 1 1 To exit this TRADE 2 -4 strategy you TRADE 3 -1 1 simply sell 1 TRADE 4 -1 1 ed1/ed4, sell 1 TRADE 5 -1 1 ed2/ed4 and sell 1 ed3/ed4. These are all very liquid spreads. NET 0 0 0 0
- 6. Bundle versus Pack As you can see you can hedge a bundle/pack quite simply through the 12 month calendars. In the example below you buy 2 yr bundle and sell 2nd pack (red). To exit you simply sell 1 unit of each the ed1/ed5, ed2/ed6, ed3/ed7 and ed4/ed8. this is a great way of managing possies. LEG1 LEG2 LEG3 LEG4 LEG5 LEG6 LEG7 LEG8 ED1 ED2 ED3 ED4 ED5 ED6 ED7 ED8 TRADE 1 1 1 1 1 1 1 1 TRADE -2 -2 -2 -2 TRADE -1 1 TRADE -1 1 TRADE -1 1 TRADE -1 1 0 0 0 0 0 0 0 0
- 7. conclusion Many traders use this method to scalp packs and bundles all day long. I think with your speed edge, plus signal strength you can trade the inside market of the packs and bundles, without having to worry about having to sell the pack you bought.