ETFs killing futures
- Thread starter local_crusher
- Start date
Hi everyone, it has been a while since my last post here, but I thought I'll add my two cent worth(less) on this issue.
It is often presumed that futures are for gamblers due to the high leverage they offer, but when it comes to the eMini vs ETF or for my example, ES vs. SPY, I have found the ES to be a better option for both short-term trading and investing (on the long side), in these interesting times. I have broken down some of the benefits in this post which is very long by the way, sorry, and added some personal experience stories for those who are interested in them.
Overnight Stops: As far as trading is concerned, the ability to have stops working overnight is a huge advantage. The biggest loss I took in 2008 was in April 11th, on a 2 to 1 leverage long the Ultra ETF SSO. The SSO gapped down big, and I was exposed. I got sopped out at the open, at much lower price then my stop market was placed at. This was the last time I carried an ETF position overnight. There is enough volume overnight on the ES that stops can be manageable. The fact that I made $114K+ just before this trade, YTD, on the ES, probably âaidedâ in the decision to take such leveraged position. Funny thing is that I was a just a day or two early on that one, as the market rallied nicely for the following 4 weeks or so.
Using Less Money: OK, so as things got really crazy and scary last year around September or so, I did not want to have too much money in one account, so I started to transfer money out of my accounts and into FDIC insured up to $200K per joint account. This was mainly done, so I could sleep better at night as I did not know which financial institution was going to go down next. In short, I believe I transferred out about $275K out of my IB trading account leaving it with $125K or so at the end of the year. In order to keep the same size positions as I could before with 400K or 800K on margin, the ES came in really handy, especially as the S&P 500 came down in price so much. Due to the high volatility, I tried to keep my maximum exposure at 12 contracts which was basically 12 x 50 x 750 = 450,000. Indeed, I went long 12 contracts at 715 in March 09, but sold 6 of them at 713, because the position size and the volatility made me nervous. I later sold the 720 calls for $27, more on that later. So, the advantage of trading $125K in my account as if I had $400K, while 200K is ready to be transferred at anytime via ACH if needed made it easier to handle. BTW, I know I could have taken a larger ES position with $125K than 12 if I was to use the entire buying power, but my rules are based on 2 to 1 real cash. With a few exceptions which cause big losses as discussed in the previous paragraph.
Commissions: Someone raised that before, but 500 Spy will cost me $2.50 in commissions, and 1 ES costs me $2.40, so the ES is a little bit cheaper for me. If you are paying more, then contact IB.
Discount versus Premium: OK, this is one of my favorite things about low interest rates, although, I hate the fact I get 0% interest on my cash balance. But for the investor who is bullish, dude you are making extra money by buying the ES versus SPY. Since fair value is calculated by Cash â Dividends + Interest, then we are getting a lower price for the ES versus the cash, which was about 4 points at the last roll over. So here you go, in 3 months you make extra 4 points, which is basically 2% annualized at S&P 500 trading @ 800. Not a bad way to beat the S&P500 by 2% if you are a money manager⦠Keep in mind that the contract settles for cash on the third Friday at the true opening price of all the 500 stocks that make the index. But, you can always roll over by using the spread trader on IB, and actually bank about 4 points on the rollover date. I have not looked at futures contracts that are several quarters away as liquidity is the most important thing to me, so I am not sure as to the point discount for those.
Options: Well, this is somewhat of a disadvantage for the ES as SPY options are much more liquid and tighter spreads, so if you are looking for cover-write, you might be better of there, although you do earn the extra points on the ES now, though, it would normally be reflected in the price of the option. WARNING: They have different classes for ES options some which expire on the third Friday of the month and some which expire at month-end. Make sure you know which one you are trading so if you would have an ES position and write a covered call that expires at one of these month-ends March, June September, or December. Your ES contract will expire on the third Friday at the open, and you will be left naked. This in fact just happened to me, and when I called to find out what was going on, I was given the wrong information. Thankfully, I discovered that I was naked and took action before the open of the next day. As The S&P went up more than 7% that Monday⦠I want to give kudos to IB customer service here as they took responsibility for giving me the wrong information and reimbursed me for the majority of the difference between the price the contract was trading at during the time I spoke to them to the actual price I paid for it later. My advice here is that even I, who has been trading for 22 years, donât know everything, so I call to make sure. And I always have the rep repeat what he tells me on the phone, and if there is ever a dispute, I can always refer to the phone call. If you guys can record your calls as well, always do so, and always manage the risk immediately and fight about it later. The ES closed Friday at 764, when I turned my computer on Sunday night when we returned from the play GREASE, it was trading at 787. When I saw that the options still showed up on my screen, I bought the ES immediately. If I didnât, I would have been in huge pain the next dayâ¦
Last Thoughts: I have come to realize that the ES has been my best performer as an index futures contract. Better than NQ, DIA or the Russell2000. I also came to realize that Gold and Oil were not for me. I lost some money trying to trade them in the past, so I decided to stick to what I know best.
My ES Performance: Since I believe that the credibility of an advice normally depends on first hand experience, I am including my trading record for the ES. I started trading the ES in 2005, but not very actively one contract here two contracts there, I made like $5000 trading it that year. I then did not trade it at all until December 2006. I am including my performance chart from 2006-2008 for those of you who are interested in it. You can see how much more active I became with the ES from the second half of 2007. You can see the table here: http://spreadsheets.google.com/pub?key=plkx7n3Ec5iz2i5-MBdsgbA
I hope this helps, have a great weekend and...
Trade Smart!
Tony Oz
It is often presumed that futures are for gamblers due to the high leverage they offer, but when it comes to the eMini vs ETF or for my example, ES vs. SPY, I have found the ES to be a better option for both short-term trading and investing (on the long side), in these interesting times. I have broken down some of the benefits in this post which is very long by the way, sorry, and added some personal experience stories for those who are interested in them.
Overnight Stops: As far as trading is concerned, the ability to have stops working overnight is a huge advantage. The biggest loss I took in 2008 was in April 11th, on a 2 to 1 leverage long the Ultra ETF SSO. The SSO gapped down big, and I was exposed. I got sopped out at the open, at much lower price then my stop market was placed at. This was the last time I carried an ETF position overnight. There is enough volume overnight on the ES that stops can be manageable. The fact that I made $114K+ just before this trade, YTD, on the ES, probably âaidedâ in the decision to take such leveraged position. Funny thing is that I was a just a day or two early on that one, as the market rallied nicely for the following 4 weeks or so.
Using Less Money: OK, so as things got really crazy and scary last year around September or so, I did not want to have too much money in one account, so I started to transfer money out of my accounts and into FDIC insured up to $200K per joint account. This was mainly done, so I could sleep better at night as I did not know which financial institution was going to go down next. In short, I believe I transferred out about $275K out of my IB trading account leaving it with $125K or so at the end of the year. In order to keep the same size positions as I could before with 400K or 800K on margin, the ES came in really handy, especially as the S&P 500 came down in price so much. Due to the high volatility, I tried to keep my maximum exposure at 12 contracts which was basically 12 x 50 x 750 = 450,000. Indeed, I went long 12 contracts at 715 in March 09, but sold 6 of them at 713, because the position size and the volatility made me nervous. I later sold the 720 calls for $27, more on that later. So, the advantage of trading $125K in my account as if I had $400K, while 200K is ready to be transferred at anytime via ACH if needed made it easier to handle. BTW, I know I could have taken a larger ES position with $125K than 12 if I was to use the entire buying power, but my rules are based on 2 to 1 real cash. With a few exceptions which cause big losses as discussed in the previous paragraph.
Commissions: Someone raised that before, but 500 Spy will cost me $2.50 in commissions, and 1 ES costs me $2.40, so the ES is a little bit cheaper for me. If you are paying more, then contact IB.
Discount versus Premium: OK, this is one of my favorite things about low interest rates, although, I hate the fact I get 0% interest on my cash balance. But for the investor who is bullish, dude you are making extra money by buying the ES versus SPY. Since fair value is calculated by Cash â Dividends + Interest, then we are getting a lower price for the ES versus the cash, which was about 4 points at the last roll over. So here you go, in 3 months you make extra 4 points, which is basically 2% annualized at S&P 500 trading @ 800. Not a bad way to beat the S&P500 by 2% if you are a money manager⦠Keep in mind that the contract settles for cash on the third Friday at the true opening price of all the 500 stocks that make the index. But, you can always roll over by using the spread trader on IB, and actually bank about 4 points on the rollover date. I have not looked at futures contracts that are several quarters away as liquidity is the most important thing to me, so I am not sure as to the point discount for those.
Options: Well, this is somewhat of a disadvantage for the ES as SPY options are much more liquid and tighter spreads, so if you are looking for cover-write, you might be better of there, although you do earn the extra points on the ES now, though, it would normally be reflected in the price of the option. WARNING: They have different classes for ES options some which expire on the third Friday of the month and some which expire at month-end. Make sure you know which one you are trading so if you would have an ES position and write a covered call that expires at one of these month-ends March, June September, or December. Your ES contract will expire on the third Friday at the open, and you will be left naked. This in fact just happened to me, and when I called to find out what was going on, I was given the wrong information. Thankfully, I discovered that I was naked and took action before the open of the next day. As The S&P went up more than 7% that Monday⦠I want to give kudos to IB customer service here as they took responsibility for giving me the wrong information and reimbursed me for the majority of the difference between the price the contract was trading at during the time I spoke to them to the actual price I paid for it later. My advice here is that even I, who has been trading for 22 years, donât know everything, so I call to make sure. And I always have the rep repeat what he tells me on the phone, and if there is ever a dispute, I can always refer to the phone call. If you guys can record your calls as well, always do so, and always manage the risk immediately and fight about it later. The ES closed Friday at 764, when I turned my computer on Sunday night when we returned from the play GREASE, it was trading at 787. When I saw that the options still showed up on my screen, I bought the ES immediately. If I didnât, I would have been in huge pain the next dayâ¦
Last Thoughts: I have come to realize that the ES has been my best performer as an index futures contract. Better than NQ, DIA or the Russell2000. I also came to realize that Gold and Oil were not for me. I lost some money trying to trade them in the past, so I decided to stick to what I know best.
My ES Performance: Since I believe that the credibility of an advice normally depends on first hand experience, I am including my trading record for the ES. I started trading the ES in 2005, but not very actively one contract here two contracts there, I made like $5000 trading it that year. I then did not trade it at all until December 2006. I am including my performance chart from 2006-2008 for those of you who are interested in it. You can see how much more active I became with the ES from the second half of 2007. You can see the table here: http://spreadsheets.google.com/pub?key=plkx7n3Ec5iz2i5-MBdsgbA
I hope this helps, have a great weekend and...
Trade Smart!
Tony Oz
Author??? Nope, never heard of this guy. No one that can really trade would actually write a book about it anyways. Try ebay, I heard his out-of-print books normally sell for a lot more than what they originally cost. What a terrible businessman he must be for not reprinting his books, go figure, lol.
Note to moderator: I noticed that you removed my signature, which is fine by me. It was created and used when RealTick sponsored these boards and was linking directly to their site. I have not been here in a while, so sorry if it is in violation now.
No! Your volume quotes are wrong. (seem not compounded over exchanges)
SPY VOL Thursday: 335M
SPY VOL Friday: 263M
Pls check Bloomberg
Well the book was published in 2001... maybe markets changed enough that "double-top patterns" no longer work.
Oh Technical analysis....
http://www.elitetrader.com/bo/index.cfm?action=view&B_ID=65&CatID=1
http://www.elitetrader.com/bo/index.cfm?action=view&B_ID=5&CatID=1
Coincidentally, you support RealTick and so did he... in his book.
He does have pretty good ratings on ET, considering it wasn't just his buddies on RealTick that gave the reviews.
I have gone back and forth and currently trade SPY. Since I trade a lot of stocks it is just easier for me to trade the SPY. If I broke out the ES trades to get the 'farmers' futures tax break I would probably save a touch. My deciding factors are ease, as mentioned above, and spread. The quarter spread in the minnies I have not calculated exactly, but it appears to be about .04 in the SPY. In other words, hitting the bid in e-mini is like selling the spy a few cents through the current bid oftentimes. This 'slippage' has been my deciding factor. If anyone thinks I'm wrong, please advise. Thanks.
I understand that a lot of successful people drop out of high school and get on with their lives, but from all the Obama comments on ET, I've come to believe about 80% of you dropped out of elementary school and missed the fact that the president (the executive branch of government) does not enact the bills that can become law. The president simply signs into law, or vetoes, bills that CONGRESS (not the president) enacts. And Congress can override a presidential veto.
Does Obama have superpowers of which I'm unaware?
Quote from NoDoji:
I understand that a lot of successful people drop out of high school and get on with their lives, but from all the Obama comments on ET, I've come to believe about 80% of you dropped out of elementary school and missed the fact that the president (the executive branch of government) does not enact the bills that can become law. The president simply signs into law, or vetoes, bills that CONGRESS (not the president) enacts. And Congress can override a presidential veto.
Does Obama have superpowers of which I'm unaware?
As a political science major I can confirm that the president does not write bills... that is obviously reserved for the legislative branch/Congress.
What I will say is that the role of the presidency has become (unfortunately), through history, increasingly powerful. Whereas George Washington desired to marginalize the power of a single man, the president, many of his successors thought otherwise. George W. Bush is perhaps the best example, for in no other administration has the executive branch grown so much in political clout.
In terms of writing legislation, the president doesn't "technically" compose the initial draft of any bill. But rather, his cabinet can suggest certain idea to members of Congress. Furthermore, the presidents influence deters other party members from creating legislation that he will be unsympathetic too. Considering how partisan American politics are, no young congressman belonging to the same party would dare to initiate a potentially hostile bill... the effects could be political suicide... for the constituency and more important for the congressman's future.
In summary, the president has indirect power to initiate any legislation through his cheer leading cabinet. Forget the old saying "checks and balances", particularly when Congress (both House and Senate) is overwhelmingly Democrat.