I agree. While the ETF is liquid enough, the underlying stocks may not be. However, the spreads sometimes get wide enough to accomodate the slippage.
________________________________ From: John-Crichton McCutcheon <[email protected]> To: [email protected] Sent: Thu, November 4, 2010 5:15:22 PM Subject: Re: [JBookTrader] Re: Cross Indicators ETF or closed end fund price vs. prices of underlying stocks (I personally know a guy who has made a fortune doing that)I've thought about exploring this one. But the thought of slippage/frictional costs scares me a bit when dealing with individual stocks. > >My interest is finding pairs of stocks with prices that closely track each >other >(such stocks are called co-integrated). When the prices diverge from each >other, I take long and short positions. When the prices mean-revert to long >term >average spread, I close both positions for profit. Since the positions are >always hedged, the strategy can make money regradless of whatever else happens >in the market. > >The math of identifying co-integrated stocks can be very simple, - just count >how many times the price spread flips sign in a fixed interval of time. Or it >can be more complicated, using specialized statistical tests, such as ADF. > >Some of JBookTrader's functionality can be useful to determine the timing of >spread mean reversion. > ________________________________ From: new_trader <[email protected]> >To: JBookTrader <[email protected]> >Sent: Thu, November 4, 2010 3:05:43 PM >Subject: [JBookTrader] Re: Cross Indicators > >@Astor: >where do you see arbitrage possibilities in JBT? Can you please >elaborate a bit more on this? >can you have some thoughts on the (mathematical) background of this? > >-- >You received this message because you are subscribed to the Google Groups >"JBookTrader" group. >To post to this group, send email to [email protected]. >To unsubscribe from this group, send email to >[email protected]. >For more options, visit this group at >http://groups.google.com/group/jbooktrader?hl=en. > > >-- >You received this message because you are subscribed to the Google Groups >"JBookTrader" group. >To post to this group, send email to [email protected]. >To unsubscribe from this group, send email to >[email protected]. >For more options, visit this group at >http://groups.google.com/group/jbooktrader?hl=en. > -- You received this message because you are subscribed to the Google Groups "JBookTrader" group. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/jbooktrader?hl=en. -- You received this message because you are subscribed to the Google Groups "JBookTrader" group. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/jbooktrader?hl=en.
