To get a delta near 1 on an SPY option, you'll probably pay about $5-7 (depending on where we are in the expiration cycle), so that ratio is not a good apples to apples comparison. But, I'm not sure that the ratio is really relevant for position-sizing. If I'm putting a specific amount at-risk on a trade, I have to "bake in" a $25 loss just from the bid-ask spread on a RT in the ES, don't I? While the corresponding amount of "baked in" loss for an SPY option is $2 (losing .01 X 100 or $1 on the opening and closing of the trade). Scale that up to the 5 SPY option contracts necessary to equate to 1 ES contract and my "baked-in" loss is $10, which is a $15 improvement over the same size position in ES. I might be missing something here, but that's the relevant comparison, it seems to me.
My take is that it depends on your holding period. I trade intraday but don't end each day flat. The exposure to overnight moves when I trade SPY options is something I don't always want (I want it if the overnight ES action moves in my favor, but don't want to either turn a winner into a loser or not maximize my gain according to my strategy), so I've now developed a strategy to trade the ES during the overnight session as needed to neutralize the SPY positions I might be holding because my exit trigger didn't hit during the day, but did hit overnight. For every 5 SPY option contracts I'm holding overnight, I will trade 1 ES contract to "lock-in" the gain or limit my loss to what my strategy dictates it should be for that given trade. Also, I might end the day session flat but a trade triggers overnight, in which case the ES is my only way of getting in to that trade. With so much action happening overnight these days, it seems like you'd want to have access to a trading vehicle which allowed you to trade that action. But, if you are a daytrader, I think the SPY options with deltas near 1 are a good vehicle for the reasons you mention, but I think you are incorrect that these options are not tax advantaged like futures. They are actually taxed in the same way. http://indexoptionstrading.alliancemtg.com/tax-advantages-of-trading-index-options/ Also, as I mentioned above, the "baked-in" loss on an ES trade is about $15 more than the equivalent SPY options trade, if the SPY option bid-ask spread is .01. That's not always the case and with the options with deltas near 1 sometimes there is less liquidity and bid-ask spreads are larger than that. My experience has been that to virtually guarantee a bid-ask spread of .01 on an SPY option, you have to accept a delta of around .85, which means that instead of 5 SPY option contracts for each ES contract, you need to buy 6 SPY option contracts to get the same level of exposure, in which case your "baked in" loss is $12, not $10. Still better than the ES, though. But, to go back to the daytrader scenario, you can get daytrader margins with the ES that enable much more leverage than you can get with SPY options for the same amount of capital. If I knew that every trade I open would be a daytrade and didn't ever hold a position overnight, I'd go with the ES, assuming that I wanted that much leverage. If you are daytrading a strategy which statistically allows for that much leverage, you just can't get it with options because the low-cost ones simply don't have the deltas to match the ES' "delta" of 1.
Good thread. I trade SPY options and they are very liquid. Good choice if you want to have risk control.
re-post from Credit Spread forum - Howard Cohodas I did run a SPY and OEX straight buying in CALLS for the expected rebound. Kept it simple with 5 contracts in SPY at a !.36 and 1 contract in the OEX at $9.20. Finished at the end of the day with gains in both. Though SPY made more with 5 contracts. On a per contract basis the OEX made more. Closed them both half hour before market ended. The lesson if any, was with SPY and the minimal market maker bid and ask spread, would be better from the viewpoint of reaching breakeven and having a profit quicker, than the OEX. Though the OEX if the move proved strong enough would earn more per contract. Comparison contracts were more to do with equivalency in dollar amounts. Was trying to stay under $1000 in each. I think I will do more SPY though as you break even a whole lot faster. Thanks to whoever sent me that tip.
Definitely more liquid than ES options. SPX options on C2 should be the holy grail. 10X the size at basically the same commission.The volumes should be huge.
I guess I´m ready to move into cash this month? Was a very nice move today. For comparison sake, I did SPY options in one funny money account and the OEX in another account. The SPY trade ( both were entered at the same time and exited at the same time ) earned $2025 and the OEX trade earned $2674. This is the second time I have run this test. The OEX pays a lot more than SPY. Don´t know why? The advantage with SPY I think, is you break even quick on shortie trades. Which can be important if you are not even going to cover spread and commissions in the OEX which are bigger. Harder to cover in a small move. At any rate I´m satisfied with the evidence and for good expected moves, will trade the OEX and if I´m trying to sort of scalp in a day trade, will use the SPY. Since 1st December my account is up 73%.
I think you may be comparing apples with oranges. 1 tick spread in ES is $12.50 How did you relate this $12.50 to option spread?
Got a question on Option brokers. What broker do you use ? I´m looking for one and interested in experiences with each of them.