Please forgive me if this is a really basic question (I'm new to options trading). I searched the forums but could not find anything. Let's say hypothetically you want to buy a put for the S&P500 index because you believe the market, based on your analysis, will go down in the next month to a certain price level. If you could only choose between buying an option for the S&P500 index, the S&P500 index futures contract, or the S&P500 E-mini futures contract, which would you choose? What factors do you consider in your analysis? Thanks in advance!
The SPY is the SPX divided by 100. (I am not sure about the third option... no pun...) It should not matter as they basically do the same thing. I am sure someone will correct me if I am wrong.
Depends on your risk tolerance and how much you're willing to spend for that protection. SPY moves with SPX, it's just a smaller contract. That said, in terms of investment vehicles: SPY is liquid and has decent spreads - pretty good for starting out in index options; SPX options have big spreads and high premiums along with nowhere as much liquidity as the SPY - I rarely touch them; futures I don't trade much, but have used them for sharp-moving intraday trading than long-term hedging. I'd say go with SPY options for some protection, and especially if you're new to the world of options....it's a good place to start. I'm sure others here can provide more detailed information on these vehicles -- I just gave you my "ten seconds" worth of insight.
I'd look at the IWM if I were you and place very small bets especially on OTM puts. We've already had a 10% correction so buying puts now is like buying fire insurance after your house is on fire... a bit too late IMO
Ah ok. Thank you very much for all of your answers. I just have 3 questions: 1) Does the S&P e-mini contract have options? If so, are they more liquid compared the SPX and SPY options?) 2) Is the larger spread on the SPX options compared to the SPY options due to the liquidity of the underling instrument? 3) Would you trade options on certain stocks in a stock index if you were expecting a significant price move in the index? Or would you just trade the index options instead? Thank you. Any help would be appreciated. Take care.
I'm just starting out with FUT options but 1 - Yes. I don't know about the full size futures but the SPY options are more liquid than the mini ES options. I checked today on the electonic mini options and they seemed pretty good. Spreads were .25 to .50...not bad. 2. Liquidity usually effects the spread...I'd imagine the best spreads are on the SPY followed by the mini and then the full contract. I'd imagine the full contract (SPX) options are only floor traded (like the futures) except for the night session. 3. If you expect a move in an equity trade the option UNLESS the spreads/liquidity is ridiculous. As for your earlier question about which one to pick. They all have different leverage with the SPY the least, followed by minis and then the SPX. Figure out the notational value. SPY options are 100 share of SPY so approx 14,500 ES options (minis) is 72500 Full size is 362500. How much do you want to risk/make?