Free Money Swiss Watch (And Franc) Style: RISK-ES Spread Closes

Tyler Durden's picture

From Friday: "The Treasury may be ceasing the incremental funding for its market
manipulative ESF.... but not quite yet. Presenting the E-mini surge on absolutely no
volume. According to Chicago floor traders, at least one bank bought
150 S&P contracts at very the close with one obvious purpose: ramp
the stock market into the weekend. Luckily, for the observant ones this
is merely another free money opportunity: the ES-RISK spread just soared
and presents the latest compression opportunity
." As of a few minutes ago, the free money opportunity, courtesy of Brian Sack and the now legendary stupidity of momentum chasers (yes, we'll gladly take their money) has just been cashed in, and brings us to n out of n profitable ES-Spread compressions.

As usual, courtesy of Capital Context

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slaughterer's picture

Good, now ES-RISK can both go down together holding hands. /sarc.  (Sly that they close outside main market hours.).

French Frog's picture

Dear ZH,

I'm very much enjoying those arbitrage trades between the ES and your RISK index. I suspect that the vast majority of readers or traders in here do not have access to a RISK chart let alone being able to trade it.

It would be good if you could run some charts to see what other more 'common' instrument is currently the most corelated to the RISK index (it used to be Aud/Jpy I believe).

Once we know that, I feel that more people would benefit from this info as you could then do the pair hedge/trade with minimal risk (ie. short ES & long 'that' instrument), rather than simply going for the more risky 1 trade (in this instance, short ES, as many people have probably been burnt shorting the indices 'naked', especially when one remembers the many meltup mondays that we've had).

Just a thought, because the 'easy money' title is only correct IF you are able to trade it in reasonable safety by being hedged.

Thanks in advance

malikai's picture

It's really nice of them to be giving away free money like that.

buttmilk's picture

What happen to the Yuan USD/CNY 5.8637

ZeroPower's picture


Standard 6.45x-6.46x peg...

Cognitive Dissonance's picture

Free Money Swiss Watch (And Franc) Style: RISK-ES Spread Closes

Like a mouse trap. Whoops, fingers just a little too close that time.

slaughterer's picture

Why would a big bank want to ramp the stock market into the weekend?  The debt ceiling discussion was not expected to continue over the weekend, and the EU meetings about Greece and the EURO were not expected to reach a conclusion either.  

chump666's picture

bull trap for dumb/smart money to buy into.  that's it.  markets have being doing this for the last 100 years.

DeadFred's picture

Don't forget it was options expiration. Moving the S&P a few points could have meant a big change in payouts.

oogs66's picture

this has become the single most useful post you context deserves credit, but figure out a way to express 'risk' so we can put on the arb!  luv ya

bill1102inf's picture

How, EXACTLY do you trade this?

bigwavedave's picture

you cant. unless you run a book in the underlying of the basket. you might be able to synthetically get close with some ETF's if you run all the correlations out. cant be bothered myself. seems self defeating.

cosmictrainwreck's picture

buzz, yer smokin' tonight....... I caught the Clash links on other thread lol slow down - yer killin' me here

Stoploss's picture

Wha? Hell yeah you can trade it. This is for Bill too, so pay attention. Watch the futures, in theory they should move ahead of the market, since they are 'futures', not pasts, or presents. If the market starts to move higher, and the futures stay flat, your right eyebrow should begin to rise, because you may have stumbled upon a possible comp trade.

If the market begins to go parabolic and futures still stay flat, then you have a real live bonafied (and verified) compression trade at hand.

It is your patriotic duty to select your favorite 3X short and back the fukin truk up, and don't pull the trigger until the last 1 or 2 minutes before the close, if it's near the close, or top tick it the best you can. Exit the trade at your discretion, and with the dry powder you should have waiting, go 3 X long for the bounce, repeat step 1, you're done, and time to go to the beach. (What i usually do).

B-rock's picture

I buy TZA (while watching tick for tick like a hawk).  It moves tick for tick with E-mini futures (ES)....  


Bullshit you can't.


ZeroPower's picture

Its not ES that a trader would have trouble buying - its the components of the RISK leg which make up items that are not only relatively illiquid (when comparing to ES) as well as counting for transaction costs, you might as well NOT put the trade on unless once again, its a fairly large order matching with the risk leg as well.

So not something for the retail guy to do - and something that the institutional guy has much easier ways of exploiting (and unless a small shop, prop guys tend to stick with their specific asset classes lest be yelled at by risk depts and their MDs..)

dcb's picture

buy some of the inverse double short funds. those perform as this closes. at least it has been working for me. I will also tell you good charting software helps. getting the trend lines right. the algo's really trade these lines. we closed on the upper trend line. what bothers me is that unlike these boy s I can't figure out how to trade for 14 hours. they have a real advantage over the public because of this.

disabledvet's picture

if the money is funny don't fight the honey. In a rational world of course you are correct about equities. I have not fought this train of thought since the elections last November. "Veerily"...the market "riseth" anyways.
Here, maybe this will help you "give my reading" Stop Making Sense:

chump666's picture

well you got volatility swing trades, as the market starts to price in a potential flashcrash.

sell on Monday's open with meltup trades. 

bobthecat's picture

What exactly is Ebasket made up of?  Thanks

treemagnet's picture

...sugar and spice and everything nice.

Libertarian777's picture

Is it the full index or only a representative sample? Eg. Most index funds don't buy all 500 sp stocks in correct proportion.

I think it's a legitimate questin

Stoploss's picture

Thank ya, thank ya very much.


treemagnet's picture

So the fucktards wind it down before "regular trading" hours open to prevent what - downside momemtum?  Like the PPT isn't armed and ready already?....WTF? 

andrew123's picture

Someone on this thread already asked, but didn't get a good answer.  What is thebasket made up of?  What is the arbitrage?  Tyler, if you don't want to answer on this thread, would you mind updating the post?

andrew123's picture

S&P contracts vs. what?  I know you sell futures, but what are you buying against it?

ZeroPower's picture

A basket considered 'risky' honestly this question comes up every single time this spread is posted, just do a search in the zh search box for 'risk basket' where its been answered many times there

DeadFred's picture


If I understand correctly from previous posts the risk basket is a synthetic and changing mix of assets while the ES is just S&P futures. Playing the ES half is easy by shorting futures or SPY for instance. The risk half is not doable for most of us. You can just do the ES half and cross your fingers it closes in the right direction, it usually works, or maybe someone can give some fund that is half-way close to the risk basket. The money isn't huge since it's only a half percent difference, but a half percent with some leverage done a bunch of times becomes significant. It's pretty much guaranteed unless something happens to break the strong correlation while you're in play. I've never played this before other than pretend, but my virtual one-sided plays with 3X inverse funds have worked well. Please correct me if anything I'm saying is rubbish.


andrew123's picture

what does a synthetic and changing mix of assets mean?  i don't beleive zerohedge is just making it up as they go.

DeadFred's picture

As I understand Capital Context (Google for a link) continually correlates various assets to find the mix that best follows the ES futures. That mix changes with time and has to be modified (I don't know the time frame for which a particular mix is valid which is important to know if you want to be serious about this) That is the hard part of this play since you're only safe to have the spread close correctly if you can duplicate the risk assets and if the correlation is valid long enough. For instance I'm guessing if yen based assets are part of this month's mix and Mt Fuji blows up and takes out Tokyo then the spread won't necessarily close correctly. But you already know you're playing in a casino with ever changing rules.

swissinv's picture

These guys are running a daily non linear multiple regression against the E-mini contract to see with what components you can explain the move in S&P500. The daily ANOVA table from the creators would be interesting to see for understanding the money flows to regressed risk assets (changes in correlations).

Havana White's picture

There ya go, Andrew.  Have at it.

ZeroPower's picture

Right, ideally you could make the risk basket dynamic

That mix changes with time and has to be modified (I don't know the time frame for which a particular mix is valid which is important to know if you want to be serious about this)


You could take 'at close' values and then divide the ES value (taking SPX close or roughly 1310 and divide that by a  specific risk item (i.e. gold @ close, ~1590) and enter those into the risk basket by the factor found, so in this spx/gold case it would be 0.8234... Repeat for all other items of .RISK

Although a much easier method might be to plot oil and silver which seem pretty high beta relating to ES and short those as opposed to including the treasurys which isnt as evident due to the "butterfly math" involved.

JJSF's picture

Thanks tyler once again.

We are taking funds indirectly back from the USG on this trade. Feels good.