Hedging ES with MES

[Robert Morse]

Can you provide a fresh question?

Robert Morse wrote this last year concerning using MES as a temp hedge against and opposite ES position

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   Robert MorseSponsor
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   "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.
   
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   rmorse@limebrokerage.com
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   #2 Jun 25, 2019
   
   CaseyB likes this.

 

[CannonTrading_Ilan]

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 ?

What expiry on the put?

 

[traderjo]

What expiry on the put?

I would guess the expiry of put could be short term using weekly options or 3,6,9 months How does it matter at the end of the expiry the underlying position is 100$ protected assuming it was a ATM put!

 

[Overnight]

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.

I totally forgot about this, and the CME offices are closed now. I'll try to remember for tomorrow. (But anyone can do this, you know.)

 

[CannonTrading_Ilan]

I would guess the expiry of put could be short term using weekly options or 3,6,9 months How does it matter at the end of the expiry the underlying position is 100$ protected assuming it was a ATM put!

It matters to the computer/ SPAN which calculates it....regardless if I agree with you cause it make sense, the final output is the margin calculator. here is what I plugged in and the output, if you need any other info, please PM me:

 

[traderjo]

Ok so would there be a Margin call if the underlying Futures goes down reason to ask is ...becasue of delta of OPtion is not 1 the "Protection" is not 100% during the life of the option it is 100% only on Expiry

 

[Overnight]

I forgot again to call them ,lol!

 

[bone]

BS. For a dozen reasons you already know. As if your ES position would bury you and MES would magically suspend itself in time waiting for your magical “hedge” offset.

Basically ...
To avoid being taken out by "Noise".
Instead of taking a loss I'd hedge my ES position.

 

[Overnight]

I forgot again to call them ,lol!

This time, I remembered to try a call at 3:58 PM ET. Asked for risk department, no answer. They're all working from home now I am sure, so the rep was prolly walking the dog. Clocked out early from his desk in the bedroom. That sort of thing.