Stocks & Commodities V.

22:1 (44): Q&A by Don Bright

Q&A
SINCE YOU ASKED
Confused about some aspect of trading? Professional trader Don Bright of Bright
Trading (www.stocktrading.com), an equity trading corporation, answers a few of
your questions. To submit a question, post your question to our website at http://
Message-Boards.Traders.com. Answers will be posted there, and selected questions
will appear in a future issue of S&C.

FOLLOWUP: ECONOMIC POLICIES Chicago Mercantile Exchange (CME), Don Bright of Bright Trading
Thank you very much for the useful and Eurex. Regards — Gerry Quick
information in your December 2003 Okay, I’m going to pass the ball a bit
column! I now have another question: here, and suggest that you check out the derlying. These contracts expire every
do the general economic policies of a three websites: www.eurexchange.com, three months starting in the March quar-
country have an impact on the variation www.cme.com, and www.cbot.com. terly cycle. (See the current listings at
of the value of stocks ? — Satinka Xo They all have excellent access to rules www.cme.com.) ETFs trade just like
Absolutely! As we grow into a true and regulations. The CME even has a stocks, and you can buy and hold them
global economy, we must always con- phone number to call for help. if you wish, or trade them intraday. The
sider such things as currency exchange I spoke directly with the CME help futures contracts that use the ETF as the
rates, import and export policies, price desk, and they were kind enough to call underlying trade just like other futures
controls, and of course, the labor mar- me back to explain the following: The and convert into cash value upon expi-
kets. If products are taxed too heavily, emini quotes show only depth and ration. The value of the Nasdaq 100
or their import/export duties favor one breadth (the order price and size), not upon expiration will be the conversion
company’s product line over another, the type, nor who or where the order cash price.
this could have a significant effect on came from. They do not distinguish
the company’s expansion, thereby af- between stop orders and any other type ENVELOPING
fecting its growth. of order. In your experience with intraday envel-
You might want to research recent I don’t think you’ll have too much oping (not on the opening), shouldn’t
legislation about the steel industry; some trouble with stop orders on any elec- we be enveloping only when the markets
call the policies “protectionism,” while tronic exchange. The breadth and depth get quiet and illiquid (generally during
others praise the policy as good for of the markets should more than com- the 11:00 am to 2:00 pm “New York
America (this is not a political forum, so pensate for any possibility of shenani- Lunch”?) Is it true that we should gen-
I’ll let you decide how you feel when gans by other traders or exchange mem- erally not have envelopes in when the
you do the research). Don’t forget about bers. We prefer not to use stop orders markets are moving? Does this also
the Federal Open Market Committee for any equity trading, but find that they hold true for the pair trading strategy
(FOMC), as well as the Federal Reserve can be used in futures trading. (yes when quiet, no when moving?)
Board and its influence on interest rates. Thanks for the help — Guy Truicko
The rates have more effect on some CONTRACTS AND EXPIRATION First off, we are not suggesting too
stocks (such as financials) than others, The March 2003 issue of S&C has an much in the way of simple pair trading
but nevertheless affect the overall in- article on the QQQ by Misha Sarkovich. these days (at least not in the same
vesting atmosphere. Good luck, and keep On page 28, item 8, Misha writes: “The context as in the past). We focus much
up your interest. QQQ contracts do not expire.” Please more on crutch pair trading versus cor-
help! I do not understand; I thought all relation modeling. Our pairs specialists
BIG BOYS contracts expire. Thank you — Bill are constantly modifying their approach
If I enter an order, do the big boys know The QQQs (the ticker symbol for the to this tactic.
it is a stop or just a new position? Can Nasdaq 100 Trust) is an exchange-traded As far as enveloping goes, yes, we
they try to hit my stop to knock me out? fund (ETF) that trades on the American want to focus on making nickels and
I am talking about the electronic futures Stock Exchange (AMEX) and is also dimes during the slower part of the day.
at the Chicago Board of Trade (CBOT), listed on the New York Stock Exchange It’s not so much a matter of busy versus
(NYSE). It trades like slow (time of day), but more a matter of
a stock on other ECNs. trending versus channeling. During the
The breadth and depth of the markets Perhaps you may be NYSE “lunch break,” we can certainly
should more than compensate for any thinking of the ND, keep tight envelopes and do well.
possibility of shenanigans by other which is the futures
contract that uses the S&C
traders or exchange members. Nasdaq 100 as the un-

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