Professor’s Comments Update 3/17/2020
Posted by OMS at March 17th, 2020
One of the things I’m seeing today is the mis-pricing on several of the derivative ETFs. Earlier today, when the Dow was up 325 points, DDM was actually down 0.20 cents. This is crazy. It’s hard enough to predict the short-term direction of this market when the trading vehicles are NOT responding accurately. Also, the spread between between the bid and ask price for instruments like the DDM or DXD have become excessive. This morning I saw a spread of 36 cents between bid and ask price which is ridiculous. I don’t want to get into the reasons why this is happening now, but it has a lot to do with the miis-pricing of the futures that make up these derivative instruments. Let’s just say that the current volatility in the markets is causing major pricing errors in the futures right now..
So what I’m doing now is avoiding all derivative ETFs that have a 2:1 leverage factor or greater. I’m still scalp trading, but have switched to stocks. For example, if you want to trade the Dow, you might want to trade one of the large oil or computer companies that are in the Dow 30. On a short-term day-to day basis, these stocks tend to move up and down with the Dow. By no means are they an exact mirror image of the Dow, but if you’re using indicators, it really shouldn’t matter. Besides, because I don’t pan to hold these positions overnight, and am only using these companies as a trading vehicle, I’d rather have a spread of a penny in an oil stock than a 0. 30+ cent spread in an ETF.
That’s what I’m doing,
h
Not sure of the terminology we use? Check out these articles
The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ
All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.
Category: Professor's Comments