Free Money: Three Days In A Row

Tyler Durden's picture

Earlier: "Buy RISK, Short ES" Major, major divergence as the robots once again are drunk on positron juice.

6 hours later:

As usual, courtesy of Capital Context

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Gubbmint Cheese's picture

Ahhhh.... I love the smell of divergence in the morning.

ljag's picture

Hey! Stop that! That's not fair!  /Sarc

What does it all mean's picture

I am almost 100% sure that this is NOT tradeable. But a indicator of where the market diverge.  


Check out the thread, and my posts:


If ZeroPower doesn't know, and he seems to be one of the more knowledgeable ones, I doubt this is tradable.  Tyler, prove me wrong!

Tyler Durden's picture

It is 100% tradable. However, probably not with an E-trade account.

What does it all mean's picture

Appreciate the sarcasm, but I do have institutional access.  Show the CIX formula, and give me a static example.  The only tough one is maybe the 10year "butterfly".  I am questioning the model's self-fulling prophecy and causality.

Show the formula, plain and simple.

For example:  Your "USGG10YR .T21030 U Index" probably stop updating at 4:15pm.  So when the future crashed at around 5:01pm, it is a stale price.  Just one of the many technicalities when you are putting real money on the line.  (try to do this during mkt hour and instead of indices, actual bid/ask for a tradeable instrument.)  Another example: VIX is not tradeable... VXX, TVIX, VX futures, variance swaps (otc), are ALL approximations.  and periodic at that.  The problem with a ACTUAL formula with TRADEABLE instruments is that we can all verify it, and then it will probably show situations that this doesn't hold true and Tyler won't report it.   Just saying...

What happen if one of the optimized coefficient is negative?  Come on Tyler, don't punch above your own weight... Do you even have a static formula?

What does it all mean's picture

Tyler, stop your fascination with Gold, and Commodities.  Look at the market, it is ripe with outliers... ie.  EURUSD, a 3% move in 36 hours... That is BIG!  Especially with 50:1 to 100:1 leverage.

ZeroPower's picture

Ya man, EUR volatility (and just in general the past 12mo) has been insane. FX Sales guys over here are making it big... Also FVA (fwd vol agreements, traded based on notional vega) are just huge. Not on the FX side myself... but exciting to watch them!

Rick64's picture

 This is so simple I don't understand why you want to make it complex. Trade the ES against the spread. The basket isn't practical to trade because it isn't a basket under one symbol, but a conglomeration of different symbols. When Tyler posts this then look at your charts and wait for a good entry (today would have easy because almost any short entry would have been in the money).

 If you want to setup your own chart then look at the chart Tyler has up and compare it until you get it right or just wait for Tyler to post it.  Its free what more do you want? Not tradable? Do you know how many times this has paid off?

What does it all mean's picture

I am glad that it is simple for you.  /sarcasm

The truth is that there is nothing simple about it. .ESBASKET is a custom index under bloomberg, it has an explicit formula, and if Tyler has it, he would have shared it.  The only reason that he didn't is either A.  It is dynamic, so everyday it changes. (due the recalculation of the regression coefficient, BTW, they don't have to be positive).  B.  It doesn't always work, so Tyler only publishes it when it does work and it seems like it always works.  

Either way, you don't know what you are talking about, because the devil is in the details.  And it's people like you that make the market lucrative.

So, either there is a formula, or all of this is BS.  and I have an idea which it is.

sitenine's picture

It doesn't look like TD wants to give you a straight answer on this one; and since this is 'As usual, courtesy of Capital Context', I doubt that TD actually has any firsthand knowledge.  Either way, you're obviously not getting anywhere asking your question here.  I would suggest digging around at

In the mean time, either trade on the information or not.  Either agree with the term 'free money' or not.  Either believe in the Tooth Fairy or not.  We're all still entitled to do that much for ourselves for the time being.  Cheers.

Habspurg's picture

"As a reminder, the risk basket is an optimized non-linear multiple regression over a varying time period (normally less than two days) using between five and eight variables (perceived as carry/risk drivers) to proxy for movements in the S&P 500 mini futures contract (the most liquid equity proxy). The variables include AUDJPY, EURJPY, Gold, Oil, 10Y TSY yield, 2s10s30s TSY butterfly spread, DXY, and 2Y US-EU swap spread. Typically we only use the first five or six with our modeling algorithm trying to find better subsets of data to use as opposed to throwing them all at the wall and seeing what sticks."

Rick64's picture

  Well Tyler is the luckiest guy in the world if everytime he posts this it works. I only know of one time that it didn't work and that was during a massive pump which was identifiable if you were watching the charts. If you weren't and just traded it blind then you should've used stops. Do you believe there is some strategy that works all the time? If you find it let me know. When there is a spread it closes if the ES looks overbought and the charts confirm it then it is a short to me. Simple to me and I don't need to know any formula or if its dynamic. Why do you need the formula?

Why don't you post all the times it worked and all the times it didn't then we will see who is full of BS.

Yen Cross's picture

  You guys are really good @ trading these minis. I understand the charts and technicals/fundamentals. I'm a currency guy. You are good at hitting the "button @ the right time.  Thanks YEN.

Juice Box's picture

I hear you can now get a algo trading program I-Phone app.  

GittyUP's picture

Whats the best (easiest) way to buy "RISK"

moneymaker's picture

Wondering about this too... can't find out how to buy "RISK". Would love to try this trade out. Also, how would you chart "RISK" in a program like that?

beechmtnski's picture

Ditto, what's the instrument on the index? Thanks


BaronG's picture

Or an explanation of the components. Can figure it out from there!

GittyUP's picture

From a previous thead:


User defined, so basically:

EURUSD Curncy. AUDJPY Curncy. USGG10YR .T21030 U Index.  CL1 Comdty. GOLDS Comdty

(from bbg so not the clearest)

Butterfly is respectively overweight/underweight 10s -2s -30s.

Yen Cross's picture

 Quick short E/U in late asia into london. H/S on the (dxy) hourly. E/Y not so good. Kampo on the bid @ 79.5   Plus SNB And BoJ could toss a Blast out there any time. Not intervention, but blow out some STOPS.

Helena Bonham-Carter's picture

Dost thou know the difference between a bitter fool and a sweet fool?

GittyUP's picture

I know the components are made up of AUD/JPY, 2/10/30 spreads, and more but Im not sure if their is an easier way to make this trade besides buying the underlying.  It looks like AUD/JPY by itself if a good proxy. 

JuicyTheAnimal's picture

I've done great with the simple buying of near the money puts on the spy.  Thanks Tylers for posting these. 

nyse's picture

If anyone wants to read about this more, check out

As a reminder, the risk basket is an optimized non-linear multiple regression over a varying time period (normally less than two days) using between five and eight variables (perceived as carry/risk drivers) to proxy for movements in the S&P 500 mini futures contract (the most liquid equity proxy). The variables include AUDJPY, EURJPY, Gold, Oil, 10Y TSY yield, 2s10s30s TSY butterfly spread, DXY, and 2Y US-EU swap spread. Typically we only use the first five or six with our modeling algorithm trying to find better subsets of data to use as opposed to throwing them all at the wall and seeing what sticks.


What does it all mean's picture

Huh, so, it is a rolling regression that always looks okay.  (By construction.) and then when it deviates, betting that it will converge again.  

The problem is that 1.  Still hard to trade.  2.  Makes money most of the time. (>90%) but lost big on that 10%.  

Just show the formula itself, and NOT that phantom "risk basket" moniker.  What is this, guerrilla marketing?

See my above post... I am suspicious by nature on all trading schemes...

tom's picture

You're taking this a bit too seriously, "what does". Nobody's going to mechanically trade all those basket members. Everybody knows there's no such thing as "free money".

What does it all mean's picture

I guess... but either you do, or you don't.  A little knowledge is deadly.

ZeroPower's picture

Ah nice, we finally found the actual source of this info.

And yes absolutely itd be hard trade, first and foremost cause of the transaction costs as you mentioned in the earlier thread, and then of course questions concerning the validity of this (i.e. when RISK-ES spread goes the other way? or can stay irrational longer than one can be solvent?)

Cheers for the good convo.

Gohn Galt's picture

Outstanding, you have cleared this up.  I am in the black today. 


This board is great!! 


Special thanks to you, nyse, ZeroPower and of course the iconic Tyler Durden.

Saxxon's picture

Next $64k question - what does the SPY do when the spending ceiling gets lifted?

1.  We just got the intimations of Q3 lift from Chairman B;

2.  When the ceiling gets lifted, I would expect a short opportunity after the initial spike.

I use Ameritrade.

NotApplicable's picture

Slightly OT, but still free money.

Remember those unwanted dollar coins filling up the Fed vaults? Well, turns out you can buy them from the US Mint with a credit card, deposit them in your bank, then pay your credit card bill with them.

Do this with enough of them, and the rewards/frequent flier miles accumulate.

HITMAN56's picture

     Bro...(what it all means)...oh look a bbg chart of ESU1 <index> <go> 1. Get a bbg Mr. Institutional access... and B. you gotta create your own custom chart for the other part..happy to provide the bbg help desk #

dcb's picture

my next potential entry is at about 1285 on s and p. if drops below look out below!!

B-rock's picture

A good way to trade this is to ride TZA -- watching one minute and 5 minute technicals...


TZA follows ES tick for tick all day long (it's supposed to follow Russell 2000, but I find ES better).


Thanks for the spread heads-up Tyler!  

newstreet's picture

Bunch on B.S. trying to make this trade.  Just a way to cover up buying cocoa at 3600 a few months back or selling the SP at 1000 last fall.  Remember those ZH calls?

JW n FL's picture

if you own gold or silver from 2 years ago.. you are more than up with the other losses.. take the losses against earnings and its free money.

sitenine's picture

And exactly how much is free money worth?

You might like this quote from congressional testimony earlier in the day -

BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: You're mistaken in saying that the Federal Reserve has spent any money. You say $5 trillion. We have lent money. We have purchased securities. That's not buying -- that's not dissipating, you know, the money.

danimal's picture

It is not tradable on the above chart if thats eastern time and you're using futures. Treas. and fx futes are not trading, not until 6:30 and 6:00 pm respectively.

bam_son's picture

I know vxx is a horrible etf but use it to get a risk snapshot.  Use a 3:1 vxx to spy ratio for example purposes and plot it.  You are either buying both or selling both. You will see that this spread moves around a lot and typically reverts.  Great way to make money most of the time but also notice that when it runs away from you it runs huge and you get destroyed.  

People who trade this probably have their puke points and book the loss and carry on.  With good capital management, money can be made in the long run as long are you dont get stupid and know when to take your hits.  Rebalancing will be a must.

Obviously this has had a good run but notice that this last example "closed" during very a very illiquid time and you would have to wait an extra 12 hrs to take the trade off if you put it on using ETFs.