My Friend Made $4,000,000 Trading this Pattern
- Posted by Michael Bigger
- on February 14th, 2011
On Thursday, I spent most of the day with a friend/business colleague discussing trading opportunities. I showed him the following chart which displays the SPY-IVV spread. Both ETFs track the S&P 500 index. The spread is highly co-integrated and stable. On average these ETFs don’t deviate more than $0.50 from each other. (I want to thank Aris David for his research on this spread).
My friend took the chart, looked at it for a few seconds, and then told me he made $4,000,000 trading similar spreads for his personal account in 2008. I was stunned.
I asked him how he made all this money trading a few spreads. He answered: they wanted liquidity and I provided it to them 24 hours a day during that period.
When securities that more or less track the same thing deviate in price by this much, you are dealing with a liquidity gap. And there is money to be made by traders willing to provide that liquidity.
1 * SPY – 1 * IVV Spread
Michael Bigger. Follow me on Twitter and StockTwits.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
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Michael Bigger is an investor and a trader who has been involved with trading technologies for more than twenty years. In 1992, Michael joined Citibank as head trader of U.S. single-stock derivatives, where he managed a $5 billion portfolio of equity derivatives. In 1998, he joined D.E. Shaw & Co., L.P. to trade the U.S. equity derivatives portfolio. (More) -
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