Please disregard this comment: i had thought the question was why is the SPY still the larger market over the futures ES contracts. I see now the question was about options and that is not something i have a clue on as some of you have figured out.
SPX = ES because it's the same underlying... It's both S&P500. SPX options are way way bigger than SPY, because SPY is like a 2nd derivative to the S&P500 since it's an ETF. Also, SPY is .10 value of SPX... and both options have 100 underlying... which means although the OI on both seem somewhat similar on first glance, say 10k in 213 SPY options and also 10k 2130 SPX options... the SPX options are effectively 10x larger....
Um, I've never exercised b4 so som1 may correct me here. With the ES options, if you exercise, how does CME work out the fees? Is it processed as 2 transactions or 3? If its 3 then I'm sure you can understand the costs involved with trading the ES .
It's cash settlement with index options so there are no transactions, not sure if there's a fee involved... but it will be less or equal than SPY, which is physical delivery...
ES options are exercised into ES futures, they are not cash settled (wish they were!). SPX options are cash settled. Some brokers charge for exercise and some don't. OptionsXpress doesn't charge if you hold ES or SPX into expiration ITM. Of course with the ES options you end up with an ES position and you do have to pay the usual commission to close that.
E-mini's are traded nearly 24 hours during the weekdays on the CME Globex system, whereas the SPY is only traded during normal and extended US exchange trading hours. Naturally, after hours on ES do not have the same liquidity as during the day, nevertheless, from a risk management perspective, this adds value. My recommendation to those that have a portfolio of short options is to run the "Global risk analyzer risk report" which gives you an estimation of the impact on your portfolio with a number of Standard Deviations applied. This could potentially give you an idea of the level of risk you are running. Options sellers need to think in terms of the one off event. Those of you who traded Option on ES in August of 2015 know what "out of the money" does to your portfolio.
I've got the feeling that the risk associated with Short OTM options is generally highly underestimated by most of the peeps here on ET... Good post!
Industry wise, on the retail side those who sell options, think of risk in terms of proximity to the strike price. They think that the further they sell, the less risk they assume. In reality, it is quite the opposite. For instance, during the ES crash last August 2015, the bid/ask spread on ES options was 10.00 to 20.00 points, even on options that had a delta of .03 the week before and were only worth about $50 to $100. I am not against options selling, but you have to do it in a way where you are not an under capitalized lottery house that when someone comes and collects it sends you out of biz, and even worse owe money (risk of deficit). I always advocate to think in terms of risk with every underlying asset and strategy. There is no other option (no pun intended) as we leave in a world that any given event could trigger a reaction that no one anticipated.
@MattZ , I'm more shocked by the arrogance inexperienced 'traders' have... they always think that a x-move will not happen... "When was the last time that that happened..?". Anyone who I consider experienced, has respect for the 'what-ifs' and realize that shit can happen. That 3% drop in SP500 last week was nothing and still you see people being shocked, let alone moves of single stocks. Especially in the hit-or-miss smaller stocks in biotech etc. Every time this subject of OTM selling comes up, I remember a junior options trader who wanted to sell all OTM's because they had no value... he didn't last long...