QO20 Quantitative Outcry

An equity index and its future trade side by side. One trader works both as a pit local.

Objective

Make money from the gap between the index and its future. Assessed on profit and loss.

What it shows

• A future and its underlying kept together by arbitrage.
• A trader who makes a market in one instrument and lays off in the other.
• Speed as a source of profit when the prices are simple.

Watch out for

• A gap between index and future that closes before the second leg is placed.
• Positions that build on one side while chasing small gains.
• Other locals taking the same gap, so the profit is gone when the order arrives.

Who takes part

• Pit local — every student. Trades RT100, the index, and RT100F, its future.

Class size

Twelve to forty students in one role. The gap exists because the class trades; the more students, the faster it closes.