c06 JWBT016-Busby October 10, 2008 20:38 Printer: TBD
The Path of Least Resistance 71S&P 500 trade. The S&P 500 is traded at the CME. There are two contracts:
the big contract trades for $250 per point, and the mini contract trades for
$50 per point. The mini contract has 4 ticks to a point, and the big con-
tract has 10 ticks per point. The S&P can be traded virtually around the
clock. The open outcry pits of the CME open each day at 8:30AMcentral
time. The big contract is traded via the pits from their opening until the pits
close at 3:15PM. Then trading shifts to the electronic platform or Globex.
The mini S&P is always traded electronically on the Globex. This virtual
trading arena opens for business each afternoon and continues for almost
24 hours. On Sundays the Globex opens at 5:00PM, and on Monday through
Thursday it opens at 3:30PM. Like the trading pits at the CME, the Globex
closes its session at 3:15PMthe following day.
The Face Peel is executed near the end of the session as the CME ap-
proaches its 3:15PMclose. I consider this trade only if the overall markets,
including the S&P 500, have made a pronounced move in one direction or
another during the session. I have no magic number of points of movement
to signal such a move. It is similar to the view of Supreme Court Justice Pot-
ter Stewart in 1964 speaking about pornography: it is difficult to define but
“you know it when you see it.” When you experience a day of pronounced
market movement in either direction, you know it. As the session nears its
close, prices are notably up or down from their opens and they have been
trending in the same direction throughout most of the day. This directional
movement signals the possibility of a Face Peel.
On days when such a move occurs, this strategy may be a good play.
Many times, a market that has been opinionated throughout the day will
make a correction at the close. However, if the opposing team makes a
failed attempt to shift directions but cannot cross the 2:30PMprice, the
day’s earlier move is often accelerated. To gauge this possibility, I record
the 2:30PMS&P price. Then I monitor prices for about 15 minutes. If
there is going to be a reversal or correction, the 2:30PMprice should be
broken to the upside or downside, depending on the direction of correc-
tion. Therefore, around 2:45PM, I again record the price and compare it
to the 2:30PMprice. If the downtrodden side has been unable to break the
2:30PMprice, I trade in the direction of the trend. That is, the opposing side
is too weak to rally so the trend of the day should continue and accelerate
to the close.
I execute the trade and ride with it until 3:14PMor so. However, prior
to 3:15PM, I close out the position. I do not hold futures contracts from
session to session. Doing so results in a much higher margin requirement.
If I want to trade the after-hours market, I reenter after the Globex or night
market opens at 3:30PM.
Figure 6.1 depicts the Face Peel trade and how it worked on April 1,
2008.