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1、Program Trading程序化交易An Introduction to Program Trading and Index ArbitrageIntroductory Domain Training SessionBy:Lynn SiaoOn:23 Nov 20102What is“Program Trading”?lDefined:A type of trading in securities usually consists of baskets of 15+stocks.3What is“Program Trading”?lIn practice:A type of trading
2、 involving stocks,options,and/or futures based on the securities prices in relation to one another on a pre-determined basis,and not on macro-or microeconomic reasons.lA“program”can be either a“buy”or a“sell”one.4What makes a program a“buy”?lYou simultaneously purchase all(or nearly all)of the stock
3、s in the index being tracked in weighted proportions.lYou then sell the future contract on the index.5Conclusion1.You are seeing(A)the futures market for the index being overvalued relative to the stock market.2.You are betting(B)the index futures price will fall while at the same time,the indexs st
4、ocks prices will rise to reach equilibrium.6ExamplelYou are trading in the S&P 500 index future contract versus the S&P 500 index(cash).7Example(Continued)lYou are trading in the S&P 500 index future contract versus the S&P 500 index(cash).lYou need to set up a“buy threshold”and a“buy active”(or the
5、 corresponding sell numbers for a“sell”program)for your“buy”program.8Example(Continued)lYou are trading in the S&P 500 index future contract versus the S&P 500 index(cash).lYou need to set up a“buy threshold”and a“buy active”(or the corresponding sell numbers for a“sell”program)for your“buy”program.
6、lYou calculate the Fair Value numbers at which the futures and cash markets are in equilibrium,and take the difference.(Note:This“futures cash”difference is also called“fair value”.)9Example(Continued)lYou are trading in the S&P 500 index future contract versus the S&P 500 index(cash).lYou need to s
7、et up a“buy threshold”and a“buy active”(or the corresponding sell numbers for a“sell”program)for your“buy”program.lYou calculate the Fair Value numbers at which the futures and cash markets are in equilibrium,and take the difference.(Note:This“futures cash”difference is also called“fair value”.)lIf
8、your“fair value”number hits or passes your threshold,then your“buy”program may begin.10Fair ValuelFair Value=(Interest on the index from now to the futures expiration)(Dividends divisor adjusted),orlFair Value=(Index Value)*(1+(Interest Rate)(Number of Days Remaining in the Future Contract)/365)1 (S
9、um of Dividends)/Index Divisor11NotelThere are several ways to calculate fair value!12So what makes a program a“sell”?13So what makes a program a“sell”?lJust the opposite of a“buy”program.14Shouldnt markets be efficient?lThe ability to arbitrage through a program is given due to the futures and stoc
10、k markets trading independently.lThis leads to over-and under-pricing cases of which can be take advantage.15What is“Index Arbitrage”then?lIt is a form of program trading.lThere are different types of index arbitrage programs,though.16Strict definitionlAn index is composed of multiple stocks,and is
11、the weighted sum of these stocks.lEach stock is traded independently of one another.lEach stock can react to market situations at different times(leaders versus laggers),so a leaders price can change before that of a lagger.lIf a trader can identify the indexs leaders and laggers,this gives him the
12、chance to take advantage of the mispricing when it happens before corrections occur.17Type of strategylYou can think of an“index arbitrage”strategy as one that is beta in nature.lIn other words,such a strategy is relative to a benchmark(or a measure of market risk).18NotelIndex arbitrage activity is
13、 rising in Asia.l“Index arbitrage tends to keep the prices of index futures where they should be by taking away inefficiencies in the market.once they get a signal to buy or sell,they will execute the whole basket.”(Hani Shalabi,Credit Suisse)lBecause of this,appropriate risk management controls wil
14、l be needed.19What is“Basis Trading”?lIt is a form of arbitrage trading also.lYou purchase one particular security and sell a similar security.lTypically,this is the purchase of a security and the sale of its corresponding future contract.This is called a“cash and carry”trade.lIt is profitable if th
15、e purchase price+the cost of carry is less than the futures price.20Brief aside:What is“Carry”?lDefinition:It is the cost of holding a position.lIt can be the cost of interest paid on a margin account,the cost of paying dividends(if you are short),storage costs(for physically held assets),or the opp
16、ortunity cost.lTypically,it is the risk-free interest rate that can be earned minus any future cash payments.21In returnlTo combine“program trading”,“index arbitrage”and“basis trading”,there are several ways.22Methods1.Index ETF versus Index Future2.Index ETF versus Synthetic Index Cash Basket3.Inde
17、x Future versus Synthetic Index Cash Basket4.And etc.23ETFlShort for:Exchange-Traded FundlDefinition:A security that“holds”assets at approximately the same price as the assets“net asset value”over the entire trading day.lAn ETF is a cash security i.e.,it trades on a stock exchange.24Example25Example
18、(Continued)26Index FuturelAlso known as:Stock market index futurelDefinition:Cash-settled futures contract on the value of a particular stock market index.l“Cash-settled”means that when delivered,the parties exchange cash,and not the entire index itself.27Synthetic Index Cash BasketlDefinition:A con
19、struct that contains the stocks in an index in the same proportions as that of the index.28Basic ExamplelGiven:1.ETF that tracks 5 stocks.2.Index that has the same 5 stocks as its constituents,but has 3 shares per stock.3.Each stock trades at US$20.00.29Example(Continued)lThe ETF,therefore,is tradin
20、g at US$100.00.The index is expected then to be trading at US$300.00.lIf one of the 5 stocks prices drop to US$15.00,then:1.The ETFs price should be US$95.00.2.The indexs price should be at US$285.00.lIf the price(s)do not match,then there may be an arbitrage possible.(Note:Excluding dividends and etc.)30Important!lAn arbitrage opportunity comes and goes very quickly.lProfit on a per-trade basis is often very low e.g.,in pennies,esp.for efficient and/or liquid markets.lFees and other costs can eat up most,if not all of your profits as a result.31Questions?32