Correlation Across Complexes

ES plus NQ plus CL is often one bet.

Advanced 6 min read Course 37 of 60

Course 37 of 60 in the futures hub. ES, NQ and crude can lose on the same day, so the book gets a dollar cap by factor instead of by how many symbols are open.

ES Plus NQ Plus CL Can Be One Bet

Long the S&P future, long the Nasdaq future and long crude can feel like three ideas. On a risk-off day they often mark against you together. The drawing puts the three in one line: ES as index, NQ as index, CL as the risk-on leg. Count dollars in the factor, not the number of root symbols. A busy blotter is a cheap way to feel diversified.

Spot currencies can carry a dollar bet in another jacket, and the forex course deals with those. On a futures statement, start with stock indexes, energy, and rates sitting on top.

1. Map the factors

Write the driver beside the symbol before you write the size. US stock indexes are one driver even when the roots say ES, NQ, RTY and YM. Energy is a second driver on days when crude has its own story, and it collapses back into the first driver when crude is just risk appetite in a barrel. Rates are a third pile. They leak into the indexes whenever yields are the thing the stock futures are reacting to. The dollar is a fourth.

Add up the dollar risk on every leg so the factor is a number. If you can't name the driver, you don't have a ceiling yet. Whatever your book holds, the bookkeeping is the same: one line per driver, one dollar ceiling, updated while you are flat.

ES + NQ + CL can be one risk-on bet wearing three root symbols ES indexNQ indexCL risk-onCap the factor, not the nickname

2. Index+index

Stacking two long index futures is usually one beta. Add the dollars. If the Nasdaq leg is meant to offset the S&P leg, write down what is left after they net. If both are long, you are just long, twice. Micros count in that sum. The drawing says 10 MES equals 1 ES. The specs agree: MES is $5 times the index, ES is $50 times the index, and 10 times $5 is $50. Same index exposure, ten small contracts or one large one.

Three positions at $229 each: 3 times $229 = $687. If all three lose on a USD/risk-off day, that $687 was one factor. Cap the factor.

Nasdaq dollars are a different multiplier, so "one index future" is a sloppy phrase. The E-mini Nasdaq-100 is $20 times that index. One point is $20, and a 0.25 tick is $5. One ES point is $50, and a 0.25 tick is $12.50. Ten MNQ match one NQ because micros are a tenth of the e-mini: the micro multiplier is $2, and 10 times $2 is $20. ES and NQ also share the quarterly cycle and both expire against the opening index on the third Friday, so roll week can shove the whole index pile at once. RTY and YM sit in the same sum on the drawing. Look up both tick values on the CME spec before either root shares the ES and NQ ceiling.

Two index names are usually one beta — add the dollars index-factor $ = ES $ + NQ $ + RTY $ + YM $ If NQ is a 'hedge' of ES name the residual If both are long it is one stacked long Micros still count 10 MES = 1 ES Write the cap before the second click

3. Index+energy

Crude sometimes really is a second factor. An inventory-print day, or a curve that is tight in the front month, can move CL while the stock indexes sit still. Name that day before you give crude its own ceiling. If you can't say what would rally the barrel and hurt the indexes, or the reverse, you don't have a separate bet, just a hope.

Some Mondays the whole complex is one pulse: risk-on, or a dollar jump, or an hour when people sell what they can. CL is 1,000 barrels. One cent is $10. One dollar on the quote is $1,000. A single CL contract can outweigh a handful of index micros inside a feeling that the book is lightly long. Until crude has shown you a day of its own, I keep it in the risk-on pile with ES and NQ.

CL can be a second factor — or the same risk-on pulse Sometimes independent Inventory print dayCurve storyName it Often the same pulse Risk-on MondayDollar impulseTreat as stacked until proven

4. Rates overlays

Yields are the overlay that fools people, because the rate contract has a different root and the loss shows up in a different column. When the stock futures are moving because of rates, the overlay and the index pile can both hit the account on the same afternoon. Give rates a ceiling of their own, then ask whether both ceilings can be reached together. If they can, the true budget is the sum.

Turn a price stop into dollars with the tick of the rate contract you actually hold, from its CME spec, and put those dollars under the rates ceiling before the order.

5. A written factor cap

Ceilings are the small form on the drawing. Index factor, one max, and that max already includes ES, NQ and the other stock-index roots. Energy factor, a second max. Rates overlay, a third. Anything tactical only if those three still have room.

Margin at the exchange and the broker's house margin both move. When they move, copy the ceilings again. A number from last quarter can be larger than the account will now carry. For reading a single ladder, and what displayed size is worth, see the order flow lesson. The ceilings here are for every futures position that is open at the same time.

A book without factor caps is a pile of opinions Index factor max $X (ES+NQ+…) Energy factor max $Y Rates overlay max $Z Tactical leftover only if factors have room

6. Mistakes, limits, takeaways

Copying a stream's contract count is the quick way to wreck a book, because their account isn't yours. Costs sit on every leg. Three small positions can still be one factor, and they pay three commissions on the way.

After the dollars are grouped, the public headcount of who already holds the indexes and the energy contracts is the Commitments of Traders report. It is old by the time you read it. It won't time the exit. It can tell you the pile is crowded.

Group positions by what drives them

Sort the blotter by driver before you sort it by symbol. S&P futures and Nasdaq futures share a pile. Crude joins that pile when it is the same mood, and it leaves only on a day you already named for the barrel. Add the dollars inside the pile. That routine is the whole defense against a busy statement.

The groups I use are US stocks, energy, interest rates and the dollar. Put the ceiling on the group. Two positions that share a driver get added before either one is allowed to look small. Updating the list is dull. A normal red day is how a week gets wrecked when nobody added the ceilings.

Checking a book for doubled bets

  • Three risks of $229 are 3 times $229, which is $687, if one day hits all three.
  • Ten MES equal one ES: 10 times $5 is $50, the same multiplier as ES.
  • One NQ point is $20 and one ES point is $50. A 0.25 tick is $5 on NQ and $12.50 on ES.
  • CL is 1,000 barrels, $10 a cent and $1,000 for a one-dollar move.
  • Crude stays in the risk-on pile unless you can name the day it splits from the indexes.

Write the ceilings down while the book is flat. Educational only. Not a recommendation to buy, sell, or hold any contract or pair.