ES Mini 5% circuit breaker=free money?

Mikey

Hi all,

I noticed that tonight the ES mini hit 1999/-5% and this triggered a circuit breaker. I also noticed that 5% is the max the ES can go down overnight until the cash open according to CME rules. If this is so then how come anyone would sell at 1999/how come everyone did not buy at 1999 as it would be 100% reward to risk ratio as the ES is now trading at 2033 three hours later. Am I missing something? Any help would be greatly appreciated as I cannot seem to find the answer anywhere using Google.

markd

I don't trade the minis so maybe there is something I am missing, but, for the sake of conversation...

How would you know, in a panic, that 1999 is the true bottom? It might have opened at 1950, or 1925 and kept going. It didn't, and maybe the odds were low that it would, but in an irrational market there was nothing to prevent it. So even though the market was limit down for that session, that wouldn't rule out lower prices to come.

Personal opinion - the Brexit thing has been way overdone by the media, possibly influenced by entrenched interests that had something to lose by it. As of this moment (about 10:50 eastern), the mid June $SPX higher low has not been broken, so the current up leg is intact, while SPY is recovering strongly from breaking that level on open. Note that the recent leg up was juiced twice by reports of polls favoring "remain" which turned out to be pretty inaccurate. The low volume was a hint that those moves weren't genuine - a cynical mind might think the market was pumped up to benefit shorts who knew better.

Mikey

Hi markd,

Thanks for your insight and the quick, helpful response.

So if I am concluding this correctly then the e-mini could have stopped at -5% for the night and if you got in around then, if all of a sudden the market fair value was say, 1950 like you mentioned, then the e-mini market would have locked at 1999 and there would have been no way to get out until the morning when it opened even lower? Is this the risk to getting in at the limit for overnight losses, the risk that the market may "lock" and there is no liquidity to get out until it opens?

I understand the market may go lower upon open but it just appeared that with a -5% limit for the ES that was triggered at 1999 then at least from 1am EST until 9:30am EST it would have been a risk free trade (unless a lock described above is possible)?

markd

I don't trade eminis, so I'm not sure about the rules. The exchange should have documentation on line that explains what happens in limit down situations. I would think as long as the emini market is open, you can trade, just not below the limit. So you should be able to get out of your order if you change your mind before the eminis close. After the eminis close, if you hold on to your position, you have downside risk that you can't do anything about. Of course, that's the same with any market that is not 24 hours. But again, check with the exchange.