Nathaniel TMK
Click Monkey
- Joined
- 4/1/12
- Messages
- 6
- Points
- 11
I just started trading Brent calendar spreads, and I am having a hard time understanding how it works. My Manager keeps saying the underlying assets are Brent outrights, and to keep trading as usual, but its still not clicking with me.
Let's take as example the front month of the Brent calendar Spreads:
MAY 2012 trading at 123.01-123.02
JUNE 2012 trading at 122.01-122.02
Buying at 1.01 & selling at 0.99
At those prices, if I hit the market simultaneously in both directions, I would be losing 2 ticks.
In the real market I lose 1 tick. If I simulate the Spreads with bigger price gaps, its even worse. When I compare the price ladders and price tickers of the spreads, there are incoherences. Big 250 lots in the spreads market would not be sweeping the actual brent markets causing a lot of imbalances in the system.
My manager tells me that the "implieds" by the exchanges are the one taking care of those "imbalances".
I do not think its the case.
I have a theory that there are Options underneath those spreads, with hidden premiums paid out to balance out the problem above.
If any of you quant geniuses could clarify this problem for me that would be very helpful.
Let's take as example the front month of the Brent calendar Spreads:
MAY 2012 trading at 123.01-123.02
JUNE 2012 trading at 122.01-122.02
Buying at 1.01 & selling at 0.99
At those prices, if I hit the market simultaneously in both directions, I would be losing 2 ticks.
In the real market I lose 1 tick. If I simulate the Spreads with bigger price gaps, its even worse. When I compare the price ladders and price tickers of the spreads, there are incoherences. Big 250 lots in the spreads market would not be sweeping the actual brent markets causing a lot of imbalances in the system.
My manager tells me that the "implieds" by the exchanges are the one taking care of those "imbalances".
I do not think its the case.
I have a theory that there are Options underneath those spreads, with hidden premiums paid out to balance out the problem above.
If any of you quant geniuses could clarify this problem for me that would be very helpful.