One does not lead the other, they trade independently of each other the reason that they trade with each other is arbitrage. An institution can come into the pit and start buying 1000's of contracts raising the price of the futures, this also drives the price of the ES higher. The S&P500 follows because stock baskets are being bought to lock in the momentary discrepancy in price or to hedge the liquidity providers in the pit. The ES follows the pit contract for the same reasons, if you can buy one at a discount to the other it is risk free money. The original function of a futures market was to hedge a commodity or cash position. Follow is the wrong word to use. They have a tight relationship based on fair value, any discrepancy is risk free money, less execution risk.
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Do pro's trade SPY?
- Thread starter cunparis
- Start date
Quote from samueldoernte:
One does not lead the other, they trade independently of each other the reason that they trade with each other is arbitrage. An institution can come into the pit and start buying 1000's of contracts raising the price of the futures, this also drives the price of the ES higher. The S&P500 follows because stock baskets are being bought to lock in the momentary discrepancy in price or to hedge the liquidity providers in the pit. The ES follows the pit contract for the same reasons, if you can buy one at a discount to the other it is risk free money. The original function of a futures market was to hedge a commodity or cash position. Follow is the wrong word to use. They have a tight relationship based on fair value, any discrepancy is risk free money, less execution risk.
Ok that makes sense the way you explain it. Thanks for taking the time I appreciate it.
Quote from chrismontez:
"I'm curious who trades SPY? Do professionals trade it? Smart money?"
I've seen some fairly large option trades on both the SPY and OEX that resulted in millions of dollars in profits. that would lead me to believe professionals do trade it.
someone bought 40,000 puts today on one strike, didn't even move the bid, spy and its options are incredibly liquid and deep.
Quote from cunparis:
I'm curious who trades SPY? Do professionals trade it? Smart money? I figure any really good trader would trade ES, so I'm wondering who that leaves to trade SPY.
I ask the question because I've seen analysts and newsletter writers analyse spy. I wonder why they don't analyze the S&P index instead. I know SPY tracks the S&P for price but for volume I'm not sure..
Of course. Reasons are:
1) liquidity
2) no rolling issues and can therefore be held longer term
3) dividend
Quote from zenith1107:
Of course. Reasons are:
1) liquidity
2) no rolling issues and can therefore be held longer term
3) dividend
Yes...also, there is time decay with ES and SP. Pull
up a continuous chart of SP back to the late 80's and
you'll see what I mean.
I suppose this discussion needs to bring up fair value.
Since the cost of owning all 500 stocks is much higher
than owning futures, interest rates must be factored
in (minus how much you would get paid in dividends).
This video shows it pretty well:
http://www.milliondollartarget.com/blog/sp-500-revisiting-1987-low/
SP is the tail that wags the dog. Look up the open interest
on cftc.gov
Being a commercial trader of SP must be nice. You get
to make money from time decay, and most of the folks
you sell to are wrong-way traders.
D
Quote from xxxskier:
not to refute what anyone has said above....but for me there is one primary reason why i daytrade ES, and thsat is the 60/40 tax treatment. saves me about 10% in taxes as a daytrader.
Professional traders who are LLC members income is taxed as ordinary income with a K-1. It doesn't really matter what you trade, it's all the same.
Quote from samueldoernte:
Professional traders who are LLC members income is taxed as ordinary income with a K-1. It doesn't really matter what you trade, it's all the same.
Yeah I use a few accounts, one of them I get a k-1 from an LLC so I"m treated as a sub LLC - pretty cool.
And as for the SPY, i'm a pro, most of my day trading is with the spy. the moves are perfect for me, nice 15-30 cent gains i can take a huge controlled position and the technicals are pretty orgasmic. it's like riding a bike.
Also, regarding VOLUME on the spy. you can't watch volume as an indicator on spy b/c it doesn't affect price directly. I can't say mostly pros trade spy b/c when you look at volume I can see a lot of stupid buys when looking at 1min charts. huge volume spikes at areas that don't make sense technically. so i can't really tell if the majority of spy trades are done by pros or by people who are just learning how to trade. as for leverage i get 50-100X on one account and 20:1 on the other intra day. and i rather just stick with equities and not fool around with the emini/future etc. rather buy/sell based on on cents than S&P points anyways.
I prefer the SPY BECAUSE ..............forgetting about the leverage of futures (i do not like more than 4:1 leverage anyway),i have found that the reduced slippage I get trading the SPY adds up tremendously over the course of trading.... with the futures it seems very hard not to have to give up a 0.25 getting in or out of a trade....