One of Our Favorite Spreads

It was a quiet week in spread trading for us.  The market seemed to be moving back in forth in a narrow range.  The only spread we follow that made some interesting moves was $SPY-$IWM.  And some of these moves occurred after market hours.  On Monday morning, pre-market, we sold 8 $SPY and bought 13 $IWM for a total of -9.7 per spread to unwind a position.  The spread closed that day at -4.25.  When it made a sharp move after hours, we decided to unwind some more at a level of -1.73.  That’s a decent size move for this spread to cover after hours.  By Wednesday the spread moved sharply again after the close.  The closing price was -7.89 and we were able to buy some back for -10.33.  We’re really not sure what’s driving these moves other than a lack of liquidity.  You can be certain though we’ll have orders out there again this week to take advantage of such sudden moves.

With the Market selling off hard this morning, we will be trading the heck out of this spread.

Written by Norm Winer. Follow me on Twitter and StockTwits.