Do index futures have time value? For example, ES june at ~1445 while the SPX index (this is the underlying right?) is at 1437.5. If the SPX is at 1437.5 in june futures expiration date, will ES also be at 1437.5? Also, if they don't have time value, what is the advantage of stock options over single stock futures? If STF provide similar leverage without the time-value decay, aren't they better overall for speculating on any big one sided move?
deep in the money options can be equivilent to single stock futures in the leverage they provide. at the money or out of the money options can provide much much more leverage, but with of course significantly more principal risk in relation to probability of success. and yes on index futures. time value = cost of carry for currency. furthermore, dividends of index are included, and come off gradually as well.
SPX closed at 1437.50 . June futures are trading at 1445 at this moment. You are correct in your assumption. The futures price is SPX + the cost of carry (from now until June). As the date approaches June expiration, the futures price and the cash price (SPX) will get closer and closer, and they will converge towards the end. In regards to the SSF question, options give you greater leverage. Take this example : before the ICE bid for CBOT a couple of weeks ago, you could've bought a 180 BOT call for .10 . The next day it was worth $14.00 . You could not have achieved the same thing with SSFs. I don't believe BOT is traded as a SSF, but if it was, you'd have to put up somewhere in the neighborhood of $3200 in margin for 100 shares. Also, from what I have heard, the liquidity in SSFs just isn't there.
i don't think liquidity is an issue here, since underlying volume dictates 'liquidity' of ssf's ... of course two negatives: can't trade them afterhours, and spreads are wide.
I don't trade them, so I can't comment on the size behind the bids/asks, however front month volume in AAPL was only 35 today. I would hardly call that liquid.
volume doesn't matter. it follows the bid/ask of the underlying - and the ONE arb bots just trade the underlying as a proxy to these futures.
Yes its obvious the futures are hedged with stock, however I imagine if you wanted to put some volume in a contract, you'd be in for a rude suprise. Thats my point.
You mean more than the 50 lot moving bid/ask? I think the ONE arbs could provide as deep liquidity (minus the loss involved with the already wider bid/ask spread) as most any of us could throw at it. Anyone who is moving more than 100 lots size at one time likely is capitalized well enough not to need the extra leverage (as they already have it by some other means) provided by SSFs - so its probably moot.
Cost of carry is equivalent to option's time value? Why does it have a different name? I thought cost of carry was the cost of carrying one quarter's contract to the next, is that something entirely different?
Futures premium and option time value premiums both have cost of carry components in them and therefore have some similarities. However option time value premiums can also be affected by volatility changes.