FTSE 100 Expiration
Q: What has the highest probability of occurring?
There is a lot of volume being traded but the market is moving sideways. The expiration date on the 3rd Friday of the 3rd quarter is approaching. Traders are rolling forward their contracts from September to December.
It makes for quite difficult trading of classic patterns. A rise in false breakouts.
Consider where the future price is relative to the spot price of the instrument being traded.
Is it higher or lower? Since futures contracts expire at the spot price that mean the futures price is more likely to move down or up to the spot price.
Since algo's trade the arbitrage here there is not a great spread between the two prices although it would make sense to trade in the direction of the spot price.
As expiration nears the distribution in the spread is more likely to be normal. This suggests the market is more inclined to mean revert. Think Bollinger Bands and rotations between the standard deviations.
Its not clear cut, there are losers and winners B for Buy and S for Sell. Higher timeframe Bollinger Bands also play a role in where price stops.
The logic behind this is that traders need prices to stabilise so they can execute like for like between the expiring contract and future contract.
There is a lot of volume being traded but the market is moving sideways. The expiration date on the 3rd Friday of the 3rd quarter is approaching. Traders are rolling forward their contracts from September to December.
It makes for quite difficult trading of classic patterns. A rise in false breakouts.
Consider where the future price is relative to the spot price of the instrument being traded.
Is it higher or lower? Since futures contracts expire at the spot price that mean the futures price is more likely to move down or up to the spot price.
Since algo's trade the arbitrage here there is not a great spread between the two prices although it would make sense to trade in the direction of the spot price.
As expiration nears the distribution in the spread is more likely to be normal. This suggests the market is more inclined to mean revert. Think Bollinger Bands and rotations between the standard deviations.
Its not clear cut, there are losers and winners B for Buy and S for Sell. Higher timeframe Bollinger Bands also play a role in where price stops.
The logic behind this is that traders need prices to stabilise so they can execute like for like between the expiring contract and future contract.
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