Friday, November 7, 2008

Evening roundup

The thing I like best about Matt's shiny new graphs is that the price spikes from heavily partisan trading become very apparent. Have a look at PM.Labour. At 10:46 tonight, somebody spent several hundred dollars (at a first guess) running the price up from $0.14 to about $0.30. It's since dropped back to $0.1978 but has a ways to go yet before getting back to its ex ante price. Market response to the spike was near instantaneous, with traders making the obvious arbitrage play shorting both National and Labour, and then buying back the bundle. Prices in PM.National dropped as consequence, but not as far as PM.Labour dropped.

About the same time as the PM.Labour price run-up, somebody had a similar go at MP.Peters: it ran up from $0.16 to $0.21 and now is down to $0.20.

I had a few asks sitting in the MP.Peters order book, knowing this had happened a few times with MP.Peters. I didn't expect it to happen in PM.Labour though.

Again, there were no price moves in the complementary markets that would have signaled anything other than a partisan trade.

Recommendation: seed the order book with bids and asks well outside of the current trading range to take advantage of folks who come in and want to spend several hundred dollars buying the stock of their preferred party and who want to do it in a hurry. There's some risk in doing this: if new information comes into the market suggesting that there really ought to be a shift in price level, you'll take a hammering. But if you're watching the market reasonably closely, you can guard somewhat against that.

Happy trading.


Anonymous said...

i've been watching these strange trades as well...across multiple contracts....I can't work out what the guy is doing but i'm just following him around and taking the opposite view...just wish I had more cash to take advantage of this!

Crampton said...

Following the guy isn't nearly as profitable as having the orders seeded in the book: I so wish I'd had asks sitting in PM.Labour around $0.28!!

I love that the market responds so quickly to what seems to be non-informational trading. My pick would be that it's a strong partisan rather than a serious manipulation attempt: a serious manipulation attempt wouldn't be handled this clumsily. On the other hand, it could be a bit of robustness testing for the feasibility of a future manipulation attempt.