In that case, you want a futures option. The margin required is about 1/3 the amount required for the same index option, and the prices move in unison with index options. Liquidity is very poor, but if you want to hedge ES, this is the tool. I believe that since there are already two sets of options that track the SPX/ES, (index opts and futures opts) that the feeling was that SPY opts would be too redundant.
Okay, I am weak on options today. As far as hedging the ES with SPX options, what is the rough ratio of option to the ES future for a rough "equal" hedge? I am trying to get my head around this. I do understand options, it's just I am trying to understand the value here. I am assuming that one SPX is equal to 1 S & P big contract...? If that is the case, then roughly 5 ES would equal 1 SPX? And yes, I mean rough. Once I get this, it will all come together. Just cleaning the cobwebs.
1 point on the spx option (cboe) =$100. This is when the delta is 1. So.... each fully valued SPX option =2 ES.
I did the math of index times 100 and then the value of the ES at around 55k. That produced 2 to 1, but I had to be sure. I then thought about this in terms of the big contract and got confused. Thank you so much for clearing this up!
I think you guys are talking about two different SPX contracts. SPX equity index options trade for $100 times the quoted price and thus move at $100 per point (at a delta of 1). SPX futures options trade for $250 times the quoted price and move a proportionate amount. Since ES is $50 per point, the answer is either 2x or 5x depending on which contract you are trading, and ignoring delta differences. There are also ES futures options which trade 1:1 with ES. Hope this didn't make things worse?
Thank you for the response. No, that makes things much better. I am looking to be able to hedge the ES in the cheapest form I can in terms of options. The more leverage the better.