Market neutral: long spy etf, short mes future

Discussion in 'Trading' started by blink18, Dec 8, 2021.

  1. blink18

    blink18

    I was thinking about market neutral strategies for spare cash on my trading account and was wondering what result would you get from long SPY etf and short MES future? I assume you get dividend from SPY and risk free rate return from MES, and no price volatility?
     
  2. Robert Morse

    Robert Morse Sponsor

    There is no way to profit from this, it requires a futures account and equity account with no cross margin.
     
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  3. maxinger

    maxinger

    @Blinking-eye, are you a kamikaze trader or a gambler?

    Did you plot the 'SPY ETF minus MES' chart before you do the market-neutral thing?

    You cannot trade based on your 2 meager sentences.
    You have to write > 2000 sentences and also include some charts.

    inter/intra/vertical/horizontal/diagonal/calender Spread trading is very common.
    But You'd better explain why you want to spread across ETF and Futures.
     
    Last edited: Dec 8, 2021
  4. If you want to make a hedged play betting on the upside, you should be long something... SPY/SPY calls or ES futures.... and long puts. If the upside prevails, your longs will be good but you'll lose the premium on your puts.... hopefully more profit on the long SPY/ES than what you paid for your put options.
     
    Last edited: Dec 8, 2021
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  5. MrMuppet

    MrMuppet

    First of all, you would want to trade this spread dollar neutral, meaning you sell 1 MES future and buy MES future price x tick value (= dollar value of your futures position) worth of SPY ETFs.

    Two things come to mind here:
    1. You're shorting a forward (MES) which includes carry in the form of interest rates
    3. Forwards are discounted for dividends so no free lunch here



    It is market neutral but your risk is the change in interest rate because it affects the forward price. At current rates you basically get nothing and just pay fees. This is a trade for the big boys who arb this stuff up and down for a fraction of a basis point. Look somewhere else.
     
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  6. MrMuppet

    MrMuppet

    cool...you basically just buy a straddle. Can you explain why this would be dump in this scenario?
     
  7. xandman

    xandman

    You will lose 0.7% with MESU22 converging to SPY and make 0.9% in dividends.
     
    Last edited: Dec 8, 2021
  8. Overnight

    Overnight

    A true market-neutral position would be a calendar spread in the MES, where you short(long) current month and long(short) forward month.

    For example, had I done that on the MES during this past market drop, I'd have been profitable on the short leg if I exited it during the past week. Then the long leg would slowly creep back up to BE or even profit over time. But it's an iffy scenario, counting on large cycles over a fairly small time-frame such as we have just witnessed.
     
  9. MrMuppet

    MrMuppet

    No. A SPY/MES spread is also market neutral. He plays for the implied forward rate vs. dividends