"Buy Programs"

[Jordan Hayes]

Tom Lehman asked:

> Has anyone ever mentioned, or, do you know from your sources
> how many times a buy program will reset after a bottom has
> been reached during a trading day?

I'm not sure I exactly understand this question, but a 'buy
program' is part of a tactic called statistical arbitrage; an
index (available typically as a future, but sometimes as an
option) price has diverged from the total of the underlying
components of the index (for lots of reasons) -- since they
theoretically have the same value, you can buy the cheap one
and sell the expensive one, pocketing the difference.  in the
case of a 'buy' program, you're buying the stocks and selling
the futures.

These kinds of programs are 'fire and forget' due to the nature
of real-time markets (discussion of slippage elided) so they are
one-shot and can be repeated if the arbitrage condition persists.

'Buy programs' typically do not result from low prices per se,
but rather basket/index pricing instabilities (which can be
exagerated due to high volatility that can accompany making lows
for the day, but not necessarily).

> Or a signal given a trader on the floor from a
> computerized remote cue.

If you get a signal from a computer, automatic execution (bypassing
the trader on the floor) is typically the result, since you can
execute electronically much faster than you can via a human.

/jordan