5 ms·

Did the shares jump just because there are many ETFs, including some big ones, that track the S&P500? I imagine those funds had to sell shares in whatever stock

Did the shares jump just because there are many ETFs, including some big ones, that track the S&P500? I imagine those funds had to sell shares in whatever stocks were leaving the index, and buy shares in Dell&Palantir.

bradleyjg 2y ago
Not yet, institutional investors aren’t buying after hours. This is speculators trying to get in ahead of the institutional buyers.
- golergka 2y ago
  Technically speaking, what you're saying is not a counter argument, because the causal relationship between the two still holds. They shares are spiking because EFT will buy them. Because other players on the market anticipate it.
- baby 2y ago
  You'd think they might have already bought in anticipation to avoid exactly this. Or OTC
  - 0cf8612b2e1e 2y ago
    Wouldn’t a hedge like that be in violation of the ETF? You claim you are going to purchase a weighted distribution of 500 companies, but you actually own 515, just in case?
    - bradleyjg 2y ago
      Depends on the exact language in the prospectus.
  - bradleyjg 2y ago
    Maybe some atm options on the four or five most likely candidates.
- Ekaros 2y ago
  Ofc they are doing this. Institutional buyers are not one mind. The managed funds which rules allow these trades are likely buying early. That is what they paid to do. The Index funds are "stupid" or mechanical. They rebalance on as their rules indicate, but they are cheap. I am not even sure is it illegal to front run your own fund with other fund... Buy before rebalancing and then sell it to indexed fund at market price...
mhh__ 2y ago
Trading these dynamics is very profitable for institutions
TheAlchemist 2y ago
That's the assumption yes, and it's backed up by the numbers. Here is one: https://www.mckinsey.com/featured-insights/sustainable-inclusive-growth/chart-of-the-day/the-ephemeral-effect-of-stock-index-inclusion https://www.mckinsey.com/featured-insights/sustainable-inclu... It touches an interesting topic that is a bit overlooked by people not working in trading. Actually, a lot of very profitable part of trading has nothing to do with anticipating if stocks will go up or down. But there is a lot of money to be made finding situations like this - those ETFs and funds are pretty much required at some point to buy the stocks being included in the index - so that gives a very valuable and factual information (as opposed to opinion whether a stock will go up or down).
- klipt 2y ago
  Which is why it's better to invest in total market ETFs. Those are harder to game (they still have to invest in IPOs, but those are a much smaller part of the total than the bottom of S&P 500)
master_crab 2y ago
Yes. Hedge funds make money off these movements all the time. It’s called index rebalancing and some funds (such as Millennium) made millions off it in recent years. It’s a bit of a crowded trade now so traders don’t make as much as they used to on this type of wager.

bradleyjg 2y ago

Not yet, institutional investors aren’t buying after hours. This is speculators trying to get in ahead of the institutional buyers.

golergka 2y ago
Technically speaking, what you're saying is not a counter argument, because the causal relationship between the two still holds. They shares are spiking because EFT will buy them. Because other players on the market anticipate it.
baby 2y ago
You'd think they might have already bought in anticipation to avoid exactly this. Or OTC
- 0cf8612b2e1e 2y ago
  Wouldn’t a hedge like that be in violation of the ETF? You claim you are going to purchase a weighted distribution of 500 companies, but you actually own 515, just in case?
  - bradleyjg 2y ago
    Depends on the exact language in the prospectus.
- bradleyjg 2y ago
  Maybe some atm options on the four or five most likely candidates.
Ekaros 2y ago
Ofc they are doing this. Institutional buyers are not one mind. The managed funds which rules allow these trades are likely buying early. That is what they paid to do. The Index funds are "stupid" or mechanical. They rebalance on as their rules indicate, but they are cheap. I am not even sure is it illegal to front run your own fund with other fund... Buy before rebalancing and then sell it to indexed fund at market price...

mhh__ 2y ago

Trading these dynamics is very profitable for institutions

TheAlchemist 2y ago

That's the assumption yes, and it's backed up by the numbers. Here is one: https://www.mckinsey.com/featured-insights/sustainable-inclusive-growth/chart-of-the-day/the-ephemeral-effect-of-stock-index-inclusion https://www.mckinsey.com/featured-insights/sustainable-inclu... It touches an interesting topic that is a bit overlooked by people not working in trading. Actually, a lot of very profitable part of trading has nothing to do with anticipating if stocks will go up or down. But there is a lot of money to be made finding situations like this - those ETFs and funds are pretty much required at some point to buy the stocks being included in the index - so that gives a very valuable and factual information (as opposed to opinion whether a stock will go up or down).

klipt 2y ago
Which is why it's better to invest in total market ETFs. Those are harder to game (they still have to invest in IPOs, but those are a much smaller part of the total than the bottom of S&P 500)

master_crab 2y ago

Yes. Hedge funds make money off these movements all the time. It’s called index rebalancing and some funds (such as Millennium) made millions off it in recent years. It’s a bit of a crowded trade now so traders don’t make as much as they used to on this type of wager.