Q&A
What are the differences between trading different futures contracts like ZB, ZN, ZT, ZF, ZD, ZS, and ZW?
The speaker explains that certain futures contracts, such as the 5-year and 2-year Treasury notes, are harder to trade due to their complexity and lower liquidity. In contrast, the 30-year (ZB) and 10-year (ZN) Treasury notes are more liquid and suitable for retail investors. The speaker also mentions that agricultural futures like wheat (ZW), corn (ZC), and soybeans (ZS) are more accessible and liquid, with all contracts trading one tick off the mid price.
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Actionable takeawayRetail investors should focus on more liquid futures contracts like ZB and ZN for Treasury notes and ZW, ZC, and ZS for agricultural commodities.
Q&A
Does trading everything dilute your product expertise?
Trading across multiple asset classes does not necessarily dilute expertise, as long as the trader remains focused on liquidity and is comfortable with the products they trade. The speaker emphasizes that expertise can be maintained by learning more and staying adaptable, even when trading a variety of instruments.
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Actionable takeawayDiversifying across asset classes can be beneficial as long as the trader maintains a focus on liquidity and comfort with the products they trade.
Q&A
Why is liquidity important for scalping options?
Liquidity is crucial for scalping options because illiquid options result in excessive edge given up during trades. The speaker emphasizes that tight markets with high liquidity, such as SPY and SPX, are ideal for scalping.
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Actionable takeawayScalping options requires tight markets with high liquidity to minimize the edge given up during trades.
Q&A
Is emotional neutrality an advantage, or do you still need a thesis on volatility, liquidity, or the underlying to manage the trade well?
Emotional neutrality is an advantage when selling premium on both sides with no directional bias. It allows for a more balanced approach to managing the trade.
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Actionable takeawayEmotional neutrality is beneficial when selling premium on both sides without a directional bias, as it allows for a balanced approach to trade management.
Q&A
Is there a point where a stock is just too cheap for its options to be worth trading?
The speaker suggests that stocks under $30 can be viable for trading, but stocks under $15 are less popular for selling premium. They also mention that the liquidity and premium available are more important factors than the stock price itself.
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Actionable takeawayStocks under $30 can be viable for trading, but stocks under $15 are less popular for selling premium. Liquidity and premium availability are more important factors.
Q&A
Do you mostly use futures and stocks for scalping? And if so, why not options?
Futures and stocks are preferred for scalping due to higher liquidity and lower transaction costs. Options are avoided because they require more edge and can reduce profitability due to the cost of entering and exiting positions.
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Actionable takeawayFutures and stocks are more liquid and have lower transaction costs, making them more suitable for scalping strategies.
Q&A
What is the speaker's opinion on trading Boeing?
The speaker acknowledges that Boeing is a challenging stock to trade due to its low liquidity and wide market movements. However, they are willing to trade it, noting that the stock has had a significant expected move and that they are selling puts to gain exposure to a potential increase in the stock price.
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Actionable takeawayThe speaker is selling puts on Boeing to gain exposure to a potential increase in the stock price, despite its low liquidity and wide market movements.
Q&A
today's option models whether they're black shows or whatever you guys are calculating what happens if the liquidity like an 87 becomes so or the volatility and the liquidity becomes so skewed that everybody kind of walks away and the bids
The speaker suggests that even if liquidity or volatility becomes skewed, markets won't get too wide during the day. High-frequency firms have handled such situations, and models are based on normal liquidity. If spreads do widen, a contrarian approach could be taken, but it's unlikely. The speaker advises not to trade with the idea of 'monsters under the bed' and to focus on liquid products where you can trade both sides.
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Actionable takeawayModels are based on normal liquidity, and while spreads can widen, it's unlikely during the day. A contrarian approach could be considered if spreads get too wide, but it's not recommended to trade with the idea of extreme market events.
Q&A
Where can you trade if you can't trade in China?
The speaker mentions that the only place you can get a hedge or exit a position is in the US markets, which are open 24 hours. Other markets like Singapore and China are not liquid enough for such actions.
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Actionable takeawayThe US markets are the primary place for hedging and exiting positions due to their liquidity and 24-hour trading.
Q&A
What would be the most liquid underlyings to use?
Leveraged ETFs like SQQQ or TQQQ are mentioned as having high volume and liquidity.
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Actionable takeawayLeveraged ETFs like SQQQ or TQQQ are considered liquid underlyings for trading.
Q&A
What do you think about the ETF, VTI, and VWO?
The speaker is unfamiliar with VTI and VWO but explains that liquidity in options for these ETFs is not sufficient. They suggest that trading the S&P 500 is more liquid and preferable for total stock market exposure, while EM funds like EM are still considered more liquid than VWO. The Footsie is deemed illiquid and not suitable for trading.
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Actionable takeawayLiquidity in options for VTI and VWO is insufficient, and the speaker prefers more liquid alternatives like the S&P 500 or EM funds.
Q&A
Does the growing mismatch between the size of the bond market and its ability to absorb large trades represent a slow building risk that could surface suddenly during the next real credit stress event?
The speaker does not see this as a significant problem, stating that they do not trade bonds outside of governments and that there is plenty of liquidity. They reference Amazon's bond issuance as an example of market liquidity supporting large trades.
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Actionable takeawayThe speaker suggests that the bond market has sufficient liquidity to support large trades, as evidenced by Amazon's successful bond issuance.
Q&A
How important is building a watch list?
Building a watch list is important as it helps identify liquid market leaders and active indices that move the markets. Essentials include leading liquid market leaders, such as NQ, and focusing on commodities and futures that trade 24/5 and move markets.
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Actionable takeawayA watch list should prioritize liquid market leaders and active indices that influence market movements.
Q&A
What are your thoughts on single stock futures?
Single stock futures have been around for decades but haven't taken off. They've been redesigned to be more retail-friendly with a multiplier of 100 shares, offering 6 to 1 leverage compared to 4 to 1 for stocks. The speaker doubts they'll have a significant impact on the stock market, citing better liquidity in stocks.
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Actionable takeawaySingle stock futures are not expected to significantly impact the stock market due to better liquidity in stocks and the small leverage difference between stocks and futures.
Q&A
What is the speaker's view on the market turning around?
The speaker believes the market will turn around on its own merits of being overbought, rather than through external factors like overnight moves or geopolitical events. The speaker also notes that the market's turning point will be when it catches everyone by surprise.
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Actionable takeawayThe speaker suggests that traders should monitor for signs of overbought conditions and be prepared for a potential reversal when the market turns around on its own.
Q&A
Do you use regular hours or global hours when you trade XSP or XPS? Any pros or cons of selecting global hours that we should be aware of?
Regular hours are recommended as markets are good, while global hours have wider spreads and lower liquidity. Markets like SPX, XSP, ES are better during regular hours, while crude oil, gold, and silver can be traded 24 hours with some liquidity.
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Actionable takeawayRegular hours are preferable for trading SPX, XSP, and ES due to better liquidity and narrower spreads. Global hours are less favorable due to wider spreads and lower liquidity, except for specific markets like crude oil, gold, and silver.
Q&A
What type of liquidity do we need to see on the CME's new single stock futures?
High liquidity is needed before trading, and it's uncertain if any brokerage firms are offering them yet.
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Actionable takeawayHigh liquidity is required before trading CME's new single stock futures.
Q&A
What is the importance of using liquid underlyings in trading?
The speaker stresses that using liquid underlyings is crucial to avoid being 'painted into a corner' where there's no optionality, no way to hedge, and no way to adjust. Illiquid assets, such as real estate, are mentioned as non-traditional and risky, and traders should be aware of the risks involved. The speaker also notes that platforms like Lost Dog focus only on liquid underlyings to ensure traders can execute their strategies effectively.
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Actionable takeawayTraders should prioritize liquid underlyings to maintain flexibility and avoid being trapped in illiquid positions.
Q&A
How do I diversify without moving into products with bad liquidity?
Look for symbols with good liquidity on the platform you're trading. There are multiple products with great liquidity, and you can use liquidity meters to identify them. Avoid products with bad liquidity.
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Actionable takeawayUse liquidity meters on your trading platform to identify and trade liquid products.
Q&A
Is the current market behavior structural or temporary?
The speaker argues that the current market behavior is structural, driven by changes in liquidity, market structure, and investment practices since the 2008 crisis. However, there is a belief that this trend may eventually reverse as markets return to pre-2008 dynamics.
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Actionable takeawayThe 'buy the dip' strategy has been effective due to structural factors, but there is a risk of a shift in market behavior.