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Strategies & Market Trends : From the Trading Desk -- Ignore unavailable to you. Want to Upgrade?

To: James Young who wrote (4063)	1/10/1999 3:06:00 PM
From: steve goldman	Respond to of 4969

I dont really understand the question. Certain firms have systeems which track interest rates, movements in futures, movements in indices, volume etc., and however and off whatever factors they determine, they may decide to put through such a program trade, of such a basket of stock, of a certain value...I believe its 15 stocks of 1million in volume or more. Regards, Steve@yamner.com

To: James Young who wrote (4063)	1/11/1999 10:43:00 AM
From: Steven Bowen	Read Replies (1) \| Respond to of 4969

"Can you possibly discuss how program tradings are triggered? I think that it's hard to predict it ahead of time but is there anyway in which you can detect it early on?" James, I'll give you my two cents worth; Program trading attempts to arbitrage the inefficiencies between where the S&P futures are trading and where the S&P cash contracts are trading. If the futures trade too high, program traders will sell the futures and buy the S&P stocks (buy program) and vice versa if they trade too low. They profit then when spread comes back to normal levels. They calculate what they call a fair value for the futures based on interest rates and dividends the S&P pays. I think the equation is something like F=S(1+(I-D)) where F is the fair value for the futures, S is the S&P 500 cash, I is the brokers margin rate, and D is the dividend rate. I usually just estimate that the fair value is about 1% per quarter above the S&P cash; ie since there are 13 weeks in this quarter, and we're 3 weeks thru it, you can approximate the fair value for the March futures by 12720.01*10/13 = 9.8 above the S&P cash. Actually CNBC makes this a lot easier every morning by telling you what fair value is, and where buy or sell programs will kick in. Today it was something like (just going off the top of my head); Fair value 9.80, Buy 10.8, Sell 8.5. You can track all this at sites like quote.com Just click on SPX.X for quotes and charts on the S&P cash. You have to enter symbols for the futures contract; ie, first two letters are SP, third letter is for year, 9 = 1999, and fourth letter is for the month of expiration, H=March, M=June,U=Sept, Z=Dec (S&P futures only expire quarterly, and as one expiration approaches they'll move to the next one out; ie now they're using SP9H, sometime around middle of March they'll switch to the SP9J, etc). You can then watch the difference and compare where we are with where buy or sell programs will kick in to get an idea of where the market stands. Actually the Quote.Com site I listed above does all this for you and uses a symbol PREM.X, which is the premium of the S&P futures over the S&P cash index. So the very short answer to your question is; watch CNBC to see the levels of where buy or sell programs will kick in, and then watch PREM.X to see where the market stands in regards to those levels. Sorry for the rambling. It's one of those questions it's tough to answer with a short answer, and once you get started you don't know where to stop. And I still don't know if I answered your question. If not, ask again. Steve

To: James Young who wrote (4063)	1/13/1999 9:15:00 PM
From: Alastair McIntosh	Respond to of 4969

James, regarding program trading Suggest you check this site: programtrading.com Use the fair value that Camp provides rather than the CNBC numbers. You have to have a real time feed of PREM values which should be plotted on 1 minute bars. Put horizontal lines on the plot for buy/sell fair value. Normally PREM will plot inside these lines. When PREM goes outside of the fair value lines a program will often hit. You have to very fast to take advantage of it. I find that there is not enough time to trade a future or OEX option. However, the stocks move slightly slower and you MAY have time to get a trade off if your order is ready to be submitted. You can try to anticipate when PREM will go to a buy or sell by watching the plot but it is difficult. In short, you have to be very quick as program trading is exactly what the name implies. Computer programs are triggered and the buying/selling happens very fast. Hope this made some sense. In any case, check out Camp's site Al