ETF / Futures Arbitrage: SPY & E-Mini S&P 500

A continuation in the series, this is the spread between SPY and the CME-listed E-Mini S&P 500 futures contract (ES).  The September 2011 ES contract is used on account of liquidity and the spread [pdf].  Prices were recorded August 26, 2011.  All times are CST.

The two securities from 3:00am to 3:00pm.

The SPY/ES spread from 3:00am to 3:00pm.

The SPY/ES spread from 8:30am to 3:00pm.

The outright prices and the corresponding spread from 8:30am - 9:30am.

Still working on the Ultra ETFs.

ETF / Futures Arbitrage: The Russell 2000 Index (IWM and TF)

A primer on this type of trade can be found here.  

This is the spread built from 1 ICE-listed Russell 2000 E-Mini futures contract (TF) traded against the iShares Russell 2000 Index Fund ETF (IWM) at a fixed ratio.  The data was recorded July 26, 2011 and consists only of the open market hours (8:30am - 3:00pm CT).

The Spread.

Trading The Opportunity.

The IWM/TF spread is offered at 60 at 11:45:41.991 AM, meaning the synthetic structure built from the combination of IWM and TF can be "purchased" for $60 per spread.  This is, of course, subject to enough liquidity available in the IWM shares.  

At 11:46:07:755 AM, the spread is 110 bid, meaning the synthetic structure can be sold at a price of $110 per spread.

Low-latency traders that operate in this space are competing for these opportunities.  

Index Arbitrage for the Do It Yourselfer

This is the process used to construct a pseudo-Index Arbitrage (similar to Delta One) model of the SPDR Dow Jones Industrial ETF versus one of the front month ECBOT-listed E-Mini Dow Jones Industrial futures contracts.  Our software is proprietary and was developed from scratch (not by me).  We are currently using IB's TWS as our medium to the markets.  It is my chemistry set.

Constructing the Spread.

Step 1: Define your bases.  Name your series.  In this case we name the file "DIA_YM".  The "t13,t14" corresponds to two of the variables on the left with open connections.  t01 through t12 are other securities currently being referenced by the software.

Step 2: Input your "proprietary" algorithm(s) of choice. As shown, currently blurred in boxes e01 through e06 (sorry, can't give it all away).

Step 3: Hit the LiveTrack(c)!

Step 4: Wait a few minutes and take a sample of the data.  This is very high-frequency, synchronized trade-and-quote data for the DIA/YM pair.  Synchronized (discussed here) meaning when any predefined variable (bid, bid size, etc.) changes, a snapshot of the entire set is taken, time-stamped down to the millisecond, and logged.

Step 5: Finally, check the result.  159 variable changes during 2 minutes and 13 seconds of sleepy after market trading.

We're no Tradeworx, but it's a start.

Further Reading:

High Frequency Data Filtering [PDF]

Clustering Techniques Applied to Outlier Detection of Financial Market Series using a Moving Window Filtering Algorithm [PDF]