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S&P Pit Traded Futures and Options Questions

Discussion in 'Trading' started by One, Sep 21, 2004.

riskarb
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Quote from nitro:

2) Long gamma or short gamma etc are meaningless if someone is not willing to give you your price. If a MM hits you, I guarantee you are down from the get go a large percentage of the time.

Retail traders need retail traders on the other side of their trades. If you want to go mano a mano and bang your head against MMs, be my guest.

nitro
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Who do you think you're trading with when you fill an order in the SPX? Ma and Pa Kettle?

The fact remains that the spreads are no wider in ES... In fact, the markets in SPX are routinely wider. Right now, the Oct 1090puts that are on my screen are 100-wide in SPX, and 75-wide in ES, 150up. Most of the markets are tighter in ES, and at 200up most of the day. Those 1090puts in SPX are 50up.

#11 Sep 22, 2004

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riskarb
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ES and SPX 1090p market
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#12 Sep 22, 2004

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nitro
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Quote from riskarb:

Who do you think you're trading with when you fill an order in the SPX? Ma and Pa Kettle?
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90% of my trades in the SPX are against retail traders, I guarantee you. And if I can smell the MM is the one on the other side of my trade, I am very quick to get out or delta hedge.

The fact remains that the spreads are no wider in ES... In fact, the markets in SPX are routinely wider. Right now, the Oct 1090puts that are on my screen are 100-wide in SPX, and 75-wide in ES, 150up. Most of the markets are tighter in ES, and at 200up most of the day. Those 1090puts in SPX are 50up.
More...

All of those things are true, but so is the fact that there is little or no retail activity in ES opts. I do not dispute that _if_ the ES opts picked up retail activity that I would be the first to trade them. Until then...

Look at the DJX. You can do 1000 lots at any time on a .10 spread or less at a myriad of strikes and months. Clearly, spreads and size on the B/A is not the principal component of every strategy.

nitro

#13 Sep 22, 2004

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globalfutures Global Futures Exchange <br>& Trading Company
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Quote from One:

A couple of questions for members that are familiar with the pit trades S&P contracts:

Futures Contracts:

how do you typically enter orders for the full size futures contract and how long does it take to enter an order and receive a confirm? Are you calling the floor brokers direct?

These are great questions, and as simple as it seems, they have a complex answers.

There are numbers of ways to place orders for pit traded, full-size SP500 contract, as well as other futures markets. (Full-size SP500 is also offered through Globex night session.) The best possible way to execute pit traded full-size SP500 or most liquid pit traded futures contracts (that have Arb lines) is by calling the pit directly. In order to qualify for a "direct floor access account", most brokerage firms require a substantial account and you must be an experienced trader (reduces the time phone clerks spend on the phone and reduces the chances of errors). Believe it or not, placing orders directly with the pit is an art and this is what a good broker can teach you.

Hereâs a scenario for you:

Letâs assume that you have the capital and know how to place orders (DRT, Fill or Kill, All or None, Stop, Stop limits, Stop with a Limit, etc....). The next step is to ask the question: âWhat is the size of your order?â Then, it depends on what type of order you are placing, market, limit, stop, etc.

You are a large trader and you have to buy 5000 SP500 contracts at the market (You can apply this method to any size order and any arbâd market). First you do not want to alert the locals or other pit brokers that you have a large order (unless you are trying to make a point!). You or your broker can speed dial to the arb desk and ask for a quote.
Broker: Where is the market?
Phone Clerk: 1.50 @ 2 (They do not quote the full price 1121.50 bid 1122.00 offer).
You: What is the size?
Phone Clerk: 100 bid at 1.50 (or 200 offered at 2.00)
You: Buy 100 at 2.00 (At this time, phone clerk is confirming the order with you and at the same time hand signaling the pit broker and writing a ticket for your 100 lot order)
Phone Clerk: Done (or "you are filled at 100@2.00""), your ticket number is XXX.

Depending on how fast you can talk or how experienced the phone clerk might be, the entire process should take no more than 10-20 seconds. Now you can repeat the whole process.
You: Where is the market?
Phone Clerk: 1.70 bid at 2.20
You: What is the size?
Phone Clerk: 200 offered by Merrill
You: Buy 200 at 2.20

At this point, your total is 300. You have 4700 more to go; you can repeat the whole process by just hitting the offers slowly and quietly. However, once the locals and other traders realize you have some size to do, they may get on board to take advantage of the free ride.

Hereâs a way to execute orders slowly and quietly: The use of DRT orders. DRT orders give discretion to the pit broker to execute your order within certain parameters. For instance, if you sell 5000 SP 500 at 1120 DRT 1 point, this order instructs the pit broker to sell 5000 lots within 1 point of 1120 or between 1119 -1121. The pit brokers will sell as many lots as possible between 1119-1121; 5 lots here, 200 lots there, 20 lots at one price, and 100 at another price, etc. No one will know how many contracts you are selling and what your price target may be. You can also widen DRT to any number of points depending on your lot size or reduce it to dimes.

Another technique is to complete your buys/sells in waves; this means you can buy and sell at different levels and prices with a net amount being long 5000 (i.e.: buy 100 sell 50, buy 400 sell 150, etc. - that leaves you net long 300 contracts). You can do this in one hour or take the whole day to execute your large order. Play both sides of the market without showing your true position and net # of contracts. Sometimes, you need to break up a large order in 1/2 and spread the business between multiple pit brokers. This way, even the pit brokers won't know how many contracts you are actually buying or selling.

It is a good idea to a have an experienced broker or a team of brokers with connections in the business to utilize trustworthy, experienced pit brokers to execute your orders. If you are a 1-2 lot trader and have a large account, you may be able to call the pit directly. We have an order placement guide for our customers who wish to utilize this service. If you choose to place orders online, you need to know what occurs after you place an order. Does it go to an upstairs order desk and the order taker calls the pit to place the order? Does it go to a desk 100 yards away from the pit and a runner takes your order to the pit brokers? Or, does it go to a desk 10 feet away from the pit?

Assuming your online SP500 order goes to a desk 10 feet away from the pit, you should expect a fill within 60 seconds or less. There are exceptions to this rule. If exchange declares an official fast market condition, it could take minutes or much longer to get the fills endorsed by the pit broker report it to the clerk to be keyed into the terminal. Unless you are doing some size, it is better to execute eminis SP rather than the big contracts. There are many traders that prefer to trade 400 eminis at a time(Max allowed at one time), pay a bit higher commission rather than trade the big contracts. If you plan to trade other markets, you may not have this option. It all depends if you have the time to execute your order on the method of execution, account size, lot size & more. Let us know if you have any additional questions.
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#14 Sep 27, 2004

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iceman1
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Quote from nitro:

That is true, but my problem with the ES option contracts are two fold (in addition to anything I mentioned alrady in the above post):

2) Long gamma or short gamma etc are meaningless if someone is not willing to give you your price. If a MM hits you, I guarantee you are down from the get go a large percentage of the time.

Retail traders need retail traders on the other side of their trades. If you want to go mano a mano and bang your head against MMs, be my guest.

nitro
More...

well said nitro... and correct.

#15 Sep 27, 2004

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riskarb
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Not really... the fact remains that ES options are routinely tighter and inside the SPX for screen trade, and the ES option brokers will fill inside the posted AQ market. Whether or not you're trading against a MM is moot provided there is relative value... the ES trade in line with the large pit option (SP). After all, the SPX options are driven by the ES/SP futures and not the cash index. *The exception being the SET value upon expiration to cash.* ES options will be Euro exercise to match the SPX conventions in short order; not 100% fungible due to LTD differences, but close enough to cross the arbs.

The short option advantage with ES options is valid... SPAN margins make it possible for the retail index option trader to sell naked gamma based upon risk-margin -- SPX short-option margin make trading naked gamma unfeasible for the retail trader. The haircut is simply too large, no matter what line you're swinging. This is a practical-advantage for the ES due to the arbitrage-pressure that maintain pricing.

I personally prefer a local-traded market(SPX, NDX, SOX...) to a broker-market(ES), but the ES contract has some advantages. I trade roughly equal numbers of ES and SPX, but prefer to trade naked short gamma in NDX.

#16 Sep 27, 2004

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craigatelite
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Quote from riskarb:

RegT for retail sux... SP options carry SPAN haircut.
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Riskarb:

If possible, can you tell me more of the discrepancies of trading S&P 500 options on the CME (SPAN) vs. CBOE (Reg T). I am interested in selling put and call spreads with limited resources.

I find some great online brokers (Think or Swim & OptionsXpress) on the stock side but don't like most of the futures side online brokers.

How much in margin do traders give up with Reg T vs. SPAN??

#17 Sep 27, 2004

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riskarb
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Quote from craigatelite:

Riskarb:

If possible, can you tell me more of the discrepancies of trading S&P 500 options on the CME (SPAN) vs. CBOE (Reg T). I am interested in selling put and call spreads with limited resources.

I find some great online brokers (Think or Swim & OptionsXpress) on the stock side but don't like most of the futures side online brokers.

How much in margin do traders give up with Reg T vs. SPAN??
More...

The SPX haircut is 4-5x greater, adjusted for multiplier(ES @ $50)

#18 Sep 27, 2004

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Futuresnut
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As an aside question related to the "pit" topic, I've been trying to figure out how to emulate pit-traded SP500 contracts with brokers who don't offer them (like IB). Couldn't a person control two separate accounts and keep the ES contracts separate? Say in one account I went long 5 ES for a position trade (emulates one large SP500) and during a bull-run fade by shorting ES retracements in the other account? That way I'm not having to reestablish the long position incurring the extra commissions. Also this approach keeps both sides of the trade tracking tick-for-tick rather than an elastic spread using another proxy like SPY.

Would brokers allow this?

#19 Nov 17, 2005

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coolweb
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Quote from globalfutures:

Quote from One:

A couple of questions for members that are familiar with the pit trades S&P contracts:

Hereâs a scenario for you:

Letâs assume that you have the capital and know how to place orders (DRT, Fill or Kill, All or None, Stop, Stop limits, Stop with a Limit, etc....). The next step is to ask the question: âWhat is the size of your order?â Then, it depends on what type of order you are placing, market, limit, stop, etc.

You are a large trader and you have to buy 5000 SP500 contracts at the market (You can apply this method to any size order and any arbâd market). First you do not want to alert the locals or other pit brokers that you have a large order (unless you are trying to make a point!). You or your broker can speed dial to the arb desk and ask for a quote.
Broker: Where is the market?
Phone Clerk: 1.50 @ 2 (They do not quote the full price 1121.50 bid 1122.00 offer).
You: What is the size?
Phone Clerk: 100 bid at 1.50 (or 200 offered at 2.00)
You: Buy 100 at 2.00 (At this time, phone clerk is confirming the order with you and at the same time hand signaling the pit broker and writing a ticket for your 100 lot order)
Phone Clerk: Done (or "you are filled at 100@2.00""), your ticket number is XXX.

Depending on how fast you can talk or how experienced the phone clerk might be, the entire process should take no more than 10-20 seconds. Now you can repeat the whole process.
You: Where is the market?
Phone Clerk: 1.70 bid at 2.20
You: What is the size?
Phone Clerk: 200 offered by Merrill
You: Buy 200 at 2.20

At this point, your total is 300. You have 4700 more to go; you can repeat the whole process by just hitting the offers slowly and quietly. However, once the locals and other traders realize you have some size to do, they may get on board to take advantage of the free ride.

Another technique is to complete your buys/sells in waves; this means you can buy and sell at different levels and prices with a net amount being long 5000 (i.e.: buy 100 sell 50, buy 400 sell 150, etc. - that leaves you net long 300 contracts). You can do this in one hour or take the whole day to execute your large order. Play both sides of the market without showing your true position and net # of contracts. Sometimes, you need to break up a large order in 1/2 and spread the business between multiple pit brokers. This way, even the pit brokers won't know how many contracts you are actually buying or selling.

Assuming your online SP500 order goes to a desk 10 feet away from the pit, you should expect a fill within 60 seconds or less. There are exceptions to this rule. If exchange declares an official fast market condition, it could take minutes or much longer to get the fills endorsed by the pit broker report it to the clerk to be keyed into the terminal. Unless you are doing some size, it is better to execute eminis SP rather than the big contracts. There are many traders that prefer to trade 400 eminis at a time(Max allowed at one time), pay a bit higher commission rather than trade the big contracts. If you plan to trade other markets, you may not have this option. It all depends if you have the time to execute your order on the method of execution, account size, lot size & more. Let us know if you have any additional questions.
More...

This was a very cool explanation, thanks man
More...

#20 Nov 17, 2005

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