Writing Options on ES and SP (S&P Futures) instead of SPX

Discussion in 'Options' started by andysmith, Aug 22, 2005.

  1. I've been writing credit spreads on SPX and am now exploring doing the same on S&P 500 futures; ES and SP.

    My understanding is that ES is not liquid enough whereas SP (the "big" one) is liquid but pit traded only (so can't use the 'ole IB account).

    I'm posting this for two reasons:

    1) Can anyone share their experience/wisdom selling credit spreads on ES and/or SP?

    2) Does the *retail* trader who sells credit spreads benefit in going with ES/SP over SPX, or is it better to stick with SPX?
  2. I trade mostly SPX options, but recently started ES options (both using IB). My observations:
    1. ES has much less volume, but reasonable liquidity. (big and steady bid/ask)
    2. The bid/ask spreads are similar, but while in SPX there are many trades in the middle, this is not the case with ES
    3. For premiums >3, minimum change is 0.1 in SPX and 0.25 in ES
    4. SPX options margin is based on reg T and ES options on SPAN. This is roughly 10:1 ratio for ES
    5. ES multiplier is 50, while SPX is 100, so you need twice the quantity for the same exposure.
    6. ES commissions are $1.65. SPX commissions are $1
  3. Anyone who sells option premium, even in the form of bear call or bull put spreads, needs to be able to hedge, esp if the handles are wide (5 pt? 15 pt?). At least if you sell ES options, you can easily--even after the US stock market is closed--buy or sell e-minis as a hedge.
  4. ES options are nearly as tight as SPX, but not as transparent. Your order has greater exposure when hitting the screens on SPX. Choose ES when trading positions with variation-margin[SPAN treatment], and SPX when no variation margin is required: verticals, flys, calendars[long], etc.
  5. OptionsWizard -- what was your motivation for going from SPX to ES? Just the leverage? How's it working out?

    similingsync -- handles are typically 10 points, and yes the ES allows round-the-clock hedging capabilities. I've heard the benefits of round-the-clock hedging ability before but always struggle with one specific concept: if an awful event occured at say midnight and I wanted to put an ES hedge on before the market opened the next moning, wouldn't ES have dived by the time I put the trade on at say 1am?

    Riskarb -- dumb it down a bit. What do you mean by "transparent" and "greater exposure when hitting the screens"?
  6. Pabst


    Aside from the issue of SPAN, ES is a totally appropriate hedge for SPX. It's NOT apples and oranges.
  7. Pabst


    Just to pipe in for Riskarb, since I know his lingo: A bid/offer in SPX is shown to the world, with an aggressive floor population able to view it as well. ES options are available to a surprisingly few number of traders. The front end order entry systems used by most options traders DO NOT facilitate options on futures. That's one reason YM and ES options lag dramatically in volume.
  8. Pabst


    Aside from the comments made by Riskarb, a retail trader is at an execution advantage over a prop or broker/dealer when it comes to SPX. Because of the CBOE's exclusive agreement with Standard & Poors regarding SPX and OEX, those indices are not multiple listed. The CBOE has a monopoly. An order from a B/D is automatically sent to the pit where the MM has the option of electing to pull his bid or offer. In other words MM's posted markets are on a "not held" basis for B/D's. I've missed some key trades the past several weeks because of that issue. As a retail guy, you can pick off those MM's till your hearts content.

  9. Hopefully one day SPY options, QQQQ options, OEX and SPX options, NDX, ES and SP options (all stock indices) will all be treated the same when it comes to margin.

    Right now it is a pain in the ass, so I stick to write options/hedging with the same thing. Makes my life easier.
  10. Xenia


    Do not forget to consider options on ER2.

    #10     Aug 23, 2005