What are some implications of holding a contract such as the ES long term? I am strictly a short term trader but have some strategies I'm working on longer term and would like to know what roadblocks I may run into if I'm holding the ES long term. I understand I'd have to roll over to the next month when the time comes but this isn't crude or natty where there will be contango/backwardation. Just curious if there are any things I should know for those of you that actually roll contracts over and hold non-commodity futures for long periods of time. I'm looking to use futures simply for the leverage and obviously the stop would be very, very tight but if the winner started running I would hold. Thanks in advance.
Dont have a lot of experience with this but you could buy calls/puts or create synthetic longs/shorts and roll the options. Just a thought as Im sure there is more info on rolling options.
I've thought of it. I just don't see any negative implications for holding futures long term other than the extreme leverage but that is something I obviously already know. I'm just trying to think of any pitfalls if you believe you see a long term trend coming where the market could make a multi-month, possibly year long, 30%+ move and you can have a stop 3-5% lower, where you would leverage yourself with futures.
1) Wider bid-ask spreads 2) Illiquidity 3) Sensitivity to interest rate changes. 4) "Spotty" intra-day charts 5) Air pockets 6) Manipulation/squeezing 7) Is that enough? You can avoid nearly all of those things by remaining in the front-month.
Read my initial post. I'll always be invested in the front month.. I will rollover on expiration day and I'm assuming there will be almost no price difference as there is no contango/backwardation in the S&P.
The risk of a black swan event like the "flash crash" in May? if you have enough accumulated profits it's not a problem with the ES dropping 100 points in one day, but otherwise you may be forced out at a large loss, would be more comfortable owning options or an ETF, you will not be forced out of your position by the broker atleast.
I don't really see any pitfalls. Your performance will be the one of the back-adjusted front month expiry datas. You can roll it directly in the calendar spread market for ease, just don't forget to do it.
Your biggest problem is if you're holding a long position as you'll be losing the interest rate at the leveraged rate you're working to. If you're in a market with low interest rates, it's not such a problem. But if you're in a market with 5% interest rates and you're leveraged at 10X then you're losing 50% a year to hold the position.
The leverage is something you decide yourself. Holding ES long is not riskier than holding a portfolio of stocks.