Hedging ES with MES

Cannon_Trading said:
I asked my fellow broker Joe Easton on his take:

My understanding is 10 MES vs 1 ES is a viable spread recognized by the exchange. The margin is $0 according to our margin calculator on E-Futures. When trading futures you want to trade less and hold for longer. This allows the market and leverage to work for you, while not allowing the commissions and choppiness to sabotage you. Often trends last 2-3 days and an excellent entry is imperative to hold through the retraces. If you have an excellent entry and do not have the initial margin... using the micros to offset your risk through the close is a great way to keep the ES entry price multiple days. If you do have the margin and there has been a significant move in your direction, you can hedge some of the profits using micro lots at points you expect counter trend move
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Hi How abt the margin requirement in case of the below

1ES future Long
1ES atm put Long
1. What will be the margin requirement for carried forward trade in the above scenario .assume atm put option fully paid .
2. At the end of the day , Do margin requirement need to be meet for unrealised loss in case ES going down .(remember)put option exists to offset any loss in ES . Is still margin required ?
 
This strategy of 100% hedge - 1 long ES emini and 10 short Micro ES (or vice versa) makes no sense at all. At some point you are going to have to make a decision to close 1 side or the other to make any money

to me it seems like you are afraid of making a bad decision about direction so perhaps you are better off using a neutral options strategy that at least benefits from time decay Versus doing this strategy of 10 micros in the opposite of every 1 emini
 
Millionaire_Raj said:
Hi How abt the margin requirement in case of the below

1ES future Long
1ES atm put Long
1. What will be the margin requirement for carried forward trade in the above scenario .assume atm put option fully paid .
2. At the end of the day , Do margin requirement need to be meet for unrealised loss in case ES going down .(remember)put option exists to offset any loss in ES . Is still margin required ?
More...
I asked the same Margin question to IB for example and the answer I got is ..NO becasue unlike Equity and Equity Option there is no mechanism to recognize the hedge ( The ATM PUT protects you at expiry for sure 100%)
 
Cannon_Trading said:
I asked my fellow broker Joe Easton on his take:

My understanding is 10 MES vs 1 ES is a viable spread recognized by the exchange. The margin is $0 according to our margin calculator on E-Futures. When trading futures you want to trade less and hold for longer...
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You should ask your fellow broker to confirm that with the CME, because as far as I know, that spread does not exist. It certainly is not listed on their margin page in the front-end. I'll ask them on Monday, see what they say on the phone.
 
My understanding is 10 MES vs 1 ES is a viable spread recognized by the exchange. The margin is $0 according to our margin calculator on E-Futures.
Cannon Trading rep
If so how does your platform recognize it? it is not a native spread so one has to have full margin for 1ES first and only when the other leg in the correct ratio the margin offset will be applied?
Could you please explain the practicality of all this

Keeping aside the point is doing ES/MES spread let me ask you a question about spread margins
I tried to ask this question to few brokers and I never got a specific answer they always say go to CME.. why can't they take a look at the exact spread I am asking the cross margin for and answer! Instead they say for "liability" reaosn they can't tell me
SO how on earth I can choose a broker if I dont know what th3 exact margin treatment is?

Example:
Double butterflies of CL
1LOng Jan2021 CL
3 LOng Feb 2021CL
3 Short March 2021CL
1 SHort April 2021 CL
Although the individual butterflies are exchange listed spreads the Doubel Butterfli is not in thi s case
Example:
2MNQ/3MYM
 
traderjo said:
...
I tried to ask this question to few brokers and I never got a specific answer they always say go to CME.. why can't they take a look at the exact spread I am asking the cross margin for and answer! Instead they say for "liability" reaosn they can't tell me
SO how on earth I can choose a broker if I dont know what th3 exact margin treatment is?
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Why should they break their head on such a construction, if they can take enough commission on "more normal" constructions? They should take unknown risk (if not they could answer your question immediately) for a small commission generating risky position. If they have to think 15 minutes about the solution they would lose money as the generated commission will be almost zero. They prefer to ask multiple margins instead of seeing the whole thing as a hedge.

Remember LTCM which was lead by famous people who even won Nobel prizes. They went completely broke, although the system was thought to be "invincible". They lost 4.6 billion in 1998. In 2000 LTCM was closed .
 
This has nothing to do with what LTCM did... also the Doubel butterfly spread is although not common it is not something completely out of this world ..it is just that these brokers are just introductory brokers and most sales people dont have a clue they are not the top tier FCMs
On one hand these brokers proudly showcase how low their day trading margins are for outright but for slightly complex combo they don't wan't to take the trouble
CME website has a tool but sometimes brokers margin could be different hence the questions
another reason behind asking this is one needs to know if the broker understands such trading!
 
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traderjo said:
This has nothing to do with what LTCM did... also the Doubel butterfly spread is although not common it is not something completely out of this world ..it is just that these brokers are just introductory brokers and most sales people dont have a clue they are not the top tier FCMs
On one hand these brokers proudly showcase how low their day trading margins are for outrights but for slightly complex combo they don't wan't to take teh trouble
CME website has a tool but sometimes brokers margin could be different hence the questions
another reason behind asking this is one needs to know if the broker understands such trading!
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I agree.
The reason I mentioned LTCM was to show that constructions that brokers don't understand will never be studied by them. Because that could lead to a LTCM situation as the brokers don't understand, and cannot manage the risk.
 
traderjo said:
an FCM don't understand Futures to Futures spreads! either LOL
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Robert Morse wrote this last year concerning using MES as a temp hedge against and opposite ES position



  1. Robert MorseSponsor"Temp hedge to ES long term position?"

    Can you explain this one? Options would be a hedge. Selling MES vs ES is just closing the positions. Why not just sell out the ES? Remember, to most Futures traders, a 1 lot of ES is not a big position. I do not see traders selling 5 MES to get a 1/2 positions when they are concerned they are wrong.

    MES is a good alternative to SPY but not to ES.

    https://www.lightspeed.com/
    rmorse@limebrokerage.com
    Work: 646-393-4806
    #2 Jun 25, 2019

    CaseyB likes this.
 
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