WTI Forward Curve: Contango in the front, backwardation beyond December 2012

For anyone curious how to trade the coming whiplash in the curve, see Downey's Oil 101. 

Interactive Broker TWS

FutureSource Workstation

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]