DD: Predictable Unpredictability: Playing SPY and VXX using recent performance against the Fed repo schedule

by MiltDavis

Taking advantage of the Pump: playing the Fed repo schedule for near-term tendies

I try to get to all questions in comments pretty fast, cuz I love this shit, but if I miss something you’re wondering that’s time sensitive just PM me and I’ll give you my opinion (which, to be clear, is NOT the opinion of a financial advisor or anything remotely close to one. be sure to do ya own research, and NEVER spend more than you can lose with a shrug and a laugh on trading–it’s not worth it.)

UPDATE: VXX has been resilient through several small SPY morning pumps as I suspected. This happened almost exactly the same times last Friday, but it had a very sharp afternoon increase. Because VXX has bounced back up, and looks to be trending that way, I will staying firm with them through the day as I believe without the afternoon help of an additional repo boost the SPY selloff will continue.

EDIT: there’s a footnote I forgot because my handwriting is atrocious–for transparency sake 6/8 was the one day of the past like two months that didn’t rise on a dual repo day, but it’s was following two days where SPY surged over 6%, which made it an outlier.

UPDATE: u/brucekeller pointed something interesting out I forgot I wanted to mention in here. The Friday June 12th term repo’s were IOEM plus ZERO basis points–in other words, on Friday the fed repos were free loans. That could’ve helped explain the size of the upward bounce back. It’ll be interesting to see if this plays out practically, as the term repos for the remainder of this month’s calendar are at 10 basis points, including the one coming this Thursday.

I tried to find any consistencies between the maturity date of the loans and the action in the markets, but came up empty. My confirmation bias was sad, that would’ve been a cool find.

UPDATE: overnight session was up and down but looks like VXX will kick things off by keeping it’s part of the bargain on the open

The “pump” is a real thing, and it’s something that the Fed is required to release information and a schedule on. It is done through a financial mechanism called a “Repo”—essentially a very short term (overnight to one month) loan given using safe securities, in this case treasury bonds, as collateral. The bottom line is it creates immediate liquidity and cash flow options for MMs, who then put it back into the market in the form of securities investment. Thus, the pump.


The suspicious strength of the pumps led me to wonder how this was actually functioning and timed, and if It could help provide predictably during the current crazy market volatility. This is what I found.

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Let’s start with the positive performances of SPY over the past month and half.

On May 6th, 7th, 8th, and 9th, SPY had a nice rally highlighted by a 1.6% jump on the 8th. After cooling off, on May 14th, 15th, and 18th it rallied up after a dip, with a notably strong jump of 3% (2.95) on May 18th. To close out May it hot up on the 26th and 27th, before one last jump on the 29th.

In June, SPY ripped on the 1st, 2nd, and 3rd, 4th, 9th, and 10th before the shitshow on the 11th. Huge bounce back on the 12th.

If you look at the corresponding Fed repo schedule (www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/repo-reverse-repo-agreements/repurchase-agreement-operational-details), you’ll see that the largest positive SPY increase days in May are correlated with the dates special dates where the Fed did two repo’s—the daily overnight AND an additional term repo (only one wasn’t noticeably large of an increase, but it was still an increase) but it was in the middle of a few day rally)

Practically speaking that means each Tuesday of the next month should see an uptick in SPY since they are listed as the double dates.

How that plays out in this crazy, unsure week? I was going to be itching for Tuesday, disappointed that it’s the (seemingly) far date of the next dual repo (overnight and term loan). but then I saw that the Friday the 12th we rally we just had fell on the day this month’s new Repo schedule took affect. Then I looked back through the schedule for 6 months, and saw without fail the day the new repo schedule is released is a positive jump for SPY. In other words, the downward correction that was happening on Thursday June 11th was bailed out by a new Friday repo scheduling. What lucky timing for da bulls.

This time there is nothing to bail out the flash crash (unless we get an impromptu Donnie Pump going hard on vaccines) and tomorrow is a downswing. Load up on VXX 6/19 calls tomorrow, ride it through at least tomorrow though we will likely go down through Friday because there’s no repo excitement to lift the markets (no new schedule release and no dual repo operation until Tuesday). Pick up 6/26 SPY calls Friday EOD if you’re confident in a good weekend news cycle, but better would be Monday for the Tuesday dual-repo pump

An interesting note is that they change the time of the operations in week or two week chunks throughout the month. Tin foil hat aside, I think this is done purposefully to create a sense of randomness in the pumps. You know how we always mention the two pm pump? They mix up the operation times after a bit so you don’t play it like clockwork.

TLDR: by VXX calls cuz we’re going down until Friday. Next week on Tuesday we have a sharp pop up so get SPY calls on Monday.


Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.


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