Strategies · Library · Indexes
§6.4Liquidity
Intraday arbitrage between index ETFs
Two ETFs on the same index (like SPY and IVV) sometimes get slightly out of line for moments. Buy the cheaper and sell the dearer when the gap beats costs; unwind when it closes.
- Asset class
- Indexes
- Held for
- Intraday
- Data
- Needs data ARCANE lacks
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Bid and ask prices of both ETFs versus a threshold
- Entry and exit
- Trade on gap; close when prices align.
- Sizing
- Equal dollar legs
How it fails
- Slippage
- Speed
- Tiny edge
Data it needs
- inputs ARCANE does not hold
Needs intraday quotes.
How ARCANE uses it
None yet: ARCANE does not hold the data this trades on.
Needs intraday bid/ask and shorting.
Filed under the liquidity card
Thinly traded assets pay a premium for being hard to sell. Hold them for it in calm markets; when trading thins across the market, cut size and move to the most liquid way to hold the view.
A paper plan from this card holds 21 to 252 days, stops at 2× the expected move and uses at most 50% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §6.4, p. 80 of the SSRN version. Described in our words. Liquidity is ARCANE’s filing, not the book’s.