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10 SPY cents = 1 ES point $1 dollar move in spy = 10 ES points move. For intra-day trading I've never really seen a difference of the values not lining up.
I like the tight spreads on SPY options. I've found good results charting from an ES continuous contract from IQ feed try @ES#C on a tick chart. This gives you the instantaneous moves as I have found a SPY chart can but not always have time lag. I keep a SPY chart on a smaller window for reference. I'm looking at 6 monitors so I have plenty of real estate. If I'm looking outside market hours then options on the ES future contracts are my choice. Different animal but worth the price of education if you're willing.
Platform: Ninja Trader, Meta Trader, Tradestation, Multicharts, Fibonacci Trader
Broker: AMP Futures
Trading: Eminis + Stocks
Posts: 16 since Oct 2009
Thanks Given: 3
Thanks Received: 13
With TD Ameritrade's free commission on stocks and ETFs, isn't better to trade SPY instead of ES? Also, TDAmeritrade allows 24 hour trading on SPY. There is no advantage in trading ES.
I am also, trying to figure out selling options (ATM straddle) 5 weekly options on SPY. Cover with 500 shares of SPY long and 1 contract of ES for short. That way I am perfectly covered for loss and pick up premiums on a weekly basis. Is this possible? Has anyone done a backtest?
I don't think that's totally correct. Although I could be totally wrong.
Two things come to mind.
1. Futures use margin requirements and leverage. Stocks you need to have the capital to purchase enough to equal the returns in the futures yet you need much more capital for the same return. So return in capital is NOT the same.
2. Taxes! And this is a big one. Futures are two lines on your tax return. Stocks are a nightmare. I hope to never have to go through that again!
I could go on but for those two reasons alone I stick to futures.
ES (and futures in general) have quite a few advantages. Some of them:
22.75 hour trading window. SPY is available to trade 16 hours a day: from 4am to 8pm, Eastern time. ES is available from 6pm to 4:15pm, and 4:30pm to 5:00pm. Liquidity is of course less than in the core cash hours, but for any retail trader it is more than sufficient. This gives near 24 hour exposure, and is available while all world markets are trading.
Leverage. Let's assume current market prices. ES is 4134, SPY is 413. ES notional value per contract is 4134*50 = $206700. SPY's notional equivalent is thus 206700/413 = 500. So, 500 SPY roughly equals 1 ES. In other words, buying 500 shares of SPY at 413 and selling at 418 gives you a $2500 profit, while buying 1 ES at 4134 and selling at 4184 gives you a $2500 profit. However, those 500 shares of SPY at $413 will cost you $206,700. However, the exchange margin requirement for ES is $11,000. So, you only need $11K to take the equivalent trade in ES. And as we all know, unless you hold that during the close, your broker will let you get by with putting up only $500-$1000 for that contract. Not sensible, but possible. So, an outlay of $206K versus $1K... Now, if you have a larger account, your broker may provide portfolio margin. Maybe you can get even 10:1 for SPY, but this still is dwarfed by the 50:1 leverage that ES provides out of the box. Again, leverage is a sword that cuts both ways, so use caution here.
Day-trading margin. PDT rules don't allow actively day-trading SPY unless you maintain a minimum account of $25,000. This is a barrier to entry for small traders. Most brokers allow opening accounts as small as $1000 and with micro contracts (last bullet point), day trading is possible (even if not advisable for accounts this size).
Favorable tax treatment. If you are fortunate enough to *make* money, then you get more favorable tax treatment with futures (section 1256 contracts). Whereas short term SPY trades (held less than 1 year) are taxed fully at the short term capital gains rate (a higher %), 60% of futures profits are taxed at a long term capital gains rate (a lower %), and only 40% are taxed at the higher short term rate.
Ubiquity. ES is the most liquid, most heavily traded futures contract on the planet. Its primary mechanism is to hedge risk on SPX options, which are the options on the most liquid global market, the S&P 500. SPY is liquid of course, but as ES is primarily a hedging vehicle, it is the go-to.
Favorable spread margin. Let's say you think cyclicals/industrials are due to outperform tech due to an increased risk of rising interest rates. You work out the notional equivalents and you decide to buy YM futures and sell NQ futures. Well, with a good broker you will not have to pay full margin for both YM and NQ. You will get a significant margin credit. Your ETF alternative is to buy DIA and short QQQ, and you are not likely to get favorable margin on this.
Micro equivalents.CME's micro e-mini contracts have been a huge success (MNQ volume is double that of NQ, and MES is about 70% of ES). They've brought the notional value down to a more reasonable level for the average retail trader. The MES has a notional equivalent of 50 SPY shares, with a very small margin requirement ($50 day trade--yikes--and around $1200 exchange). While SPY has the advantage of being much more granular than the ES, the MES, being 1/10 the size, serves much the same role that SPY did for those who might want a smaller size than what ES provides.
Platform: Ninja Trader, Meta Trader, Tradestation, Multicharts, Fibonacci Trader
Broker: AMP Futures
Trading: Eminis + Stocks
Posts: 16 since Oct 2009
Thanks Given: 3
Thanks Received: 13
Everyone is trying to copy and paste those ads from Futures' brokerage firms.
I don't care about margin. I have a portfolio margin account. I don't care about PDT. Portfolio margin works very similar to SPAn margin which is the type of margin future contracts utilize.
I don't pay commission trading stocks and ETFs. Also, TD Ameritrade allows SPY to be traded 24 hours. YES. 24 hours. It doesn't even close for a minute.
The only disadvantage seems to be the tax benefit but that is also about the same if you are considered an active trader. To me, trading future contracts places me in many many disadvantages including some closing time and paying commission. So please don't try to bring in you can make a million-dollar trading future's with as low as $1,000 attitude.
My question was never about which is a better future vs. stocks. I gave you a strategy that requires two different breeds of instruments since you can't short and long on the same instrument at the same time in the same account. If you don't understand the strategy I mentioned above, please don't reply. I am a very serious trader and do not want to waste my time listening to some BS about how great day trading future is.
Amazing, how people can't understand a basic question on strategy testing.
Do not psych yourself with a little knowledge on how day trading future contract is the best thing in the world. PLEASE.
You are very welcome to comment on strategy but nothing else like how your shoes feel good, girlfriend is pretty, and future is GREAT.
Not getting into it but josh gave you more than a reasonable answer that was far from canned for the first part if your question.
You don't pay commissions. Have a massive account and don't care about leverage or taxes and can trade the SPY literally 24hrs a day.
I think you already have it figured out. As for the options strategy that seems pretty straightforward as well and there are many threads to answer your question.