Options on Index Futures

Can anyone tell me why the volume on options on the ES is so low vs the similar contract on the index (futures options vs. index options)?

The problem could be that my QCharts just isn't showing the data. Given the margin differences and 24 hr trading, it would seem that futures options should have better liquidity.

 

Volume on options on the full contract are higher than the emini, but still no where near the volume and OI of the equity index options. Seems a matter of how they're used.

With futures you can use the contracts themselves to set up calendar spreads and you can use the contracts in some portfolio hedging strategies and the contracts themselves have high leverage so less need to seek an additional leveraging vehicle. In addition, more involved strategies are done by players working with the full contracts (hence the higher volume on their volumes) while emini traders do mostly straight trading in the contracts.

Equity traders will use the equity index options to do spreads, many portfolios are still hedged with them, and they're used by some as a way of increasing leverage. I think there may also be some behind the scene cross-action involving the SPX options and the SPY and also as part of the risk layoff strategies of some futures/equity arbs.

 

Thanks for the reply AA.

I have been using index equity opts and was really trying to use opts on futures instead - to effectively lower the margin required by about 5x - 6x while getting roughly the same $$$. Of course, if there's no liquidity, it may not be worth getting into. The few days I've tried, I have only sporadically seen bid/ask info posted, and sometimes only one side - although the numbers seem close to what is posted for index equity opts.

I don't quite have the capital to swing the SP. I could do a few, but the smaller ES opts would provide the flexibility I need to construct the kinds of positions I'm looking for.

 

My advice would be to use the big contracts. Without restating the obvious, I think you would have a lot more success sticking with trading 1/5 as many of the big contracts due merely to the liquidity offered in these options. I can't make any guarantees, but from experience working in that pit at the CME, the majority of the time you should have no problems getting filled on small orders without having to pay the offer or sell the bid--reason being that most of the time the brokers don't want to be "bothered" with having to work a small order<10 contracts, and they will generally lean on the MMs to fill the order. The MMs generally with do these trades merely to get on the good side of the brokers so that when larger orders come in that have some edge, those MMs will be able to get in on the trade. In general, if your only looking to hedge about 20-30 minis--meaning 4-6 big contracts, I expect that you should be able to get filled in the middle of the bid/ask spread most of the time. Hope this helps, and I will say that I have no experience in the e-mini option contracts, anf FWIW in the four years I was in the S&P options pit, I never once heard anyone talk about trading the e-mini options--so that's why there's no liquidity.

Vega

 

ktm - keep in mind that futures options (especially when combined with contracts) are not margined like the equity index options.

 

I am not able to bring the big contracts up using the IB TWS. I get the contract on screen using SPX, then FUTOPT, then picking (for example) the Aug 1050 Call Globex. I get the contract and it shows the (250) multiplier, but when it comes up in the TWS there are no quotes or past trades. I enter an order, then check margin and I get "no data available, order may be invalid".

I also looked on the IB website under margin, opts on futures, to get the margin requirements, and found nothing on the big contracts? The ES was there. Does anyone trade these on IB? If so, what is the correct way to enter the ticker to get the contracts up?

Thanks

 

You can't trade the pit traded futures or options on futures on IB.

 

IB doesn't carry " pit traded only" instruments

 

Thanks guys...

The ES options on futures trades thru IB, but apparently not the pit only. Thanks for the info.

 

Thanks guys...

The ES options on futures trades thru IB, but apparently not the pit only. Thanks for the info.