Index futures vs. Leveraged ETFs

[cunparis]

Quote from crgarcia:

With an SSO share, you are controlling just $120 (2 x $60 the SSO price) worth of S&P.
With an E-Mini S&P future you are controlling $64,650 (50 x index), of S&P.

From what I see the margin for ES is $2k. $2k to control $64k is not bad. With SSO, $2k will control $4k worth. Is this correct?

I'm waiting for a pullback on the S&P before adding to my position. I think I will buy 1 ES contract instead of more SSO.

From what I read IB has an automatic rollover of futures. Not sure just how automatic it is but as long as it reminds me I will be fine.

 

[crgarcia]

Quote from cunparis:

From what I see the margin for ES is $2k. $2k to control $64k is not bad. With SSO, $2k will control $4k worth. Is this correct?

I'm waiting for a pullback on the S&P before adding to my position. I think I will buy 1 ES contract instead of more SSO.

From what I read IB has an automatic rollover of futures. Not sure just how automatic it is but as long as it reminds me I will be fine.

ES margin is $4,500.
Controlling 64k with only 4.5 gives a net leverage of 14.22:1
Suicidal for a beginner!

SSO leverage of 2:1 (or even 4:1 if purchased on margin) is quite manageable.

 

[newbunch]

Quote from cunparis:

From what I see the margin for ES is $2k. $2k to control $64k is not bad. With SSO, $2k will control $4k worth. Is this correct?

I'm waiting for a pullback on the S&P before adding to my position. I think I will buy 1 ES contract instead of more SSO.

From what I read IB has an automatic rollover of futures. Not sure just how automatic it is but as long as it reminds me I will be fine.

First of all, IB does not have automatic rollover of futures positions. They only have automatic rollover of the quotes. Many have been fooled by this. You have to rollover the positions on your own.

In a buy and hold situation, it makes no difference if you buy $64000 worth of SPY or 1 ES. The ES is prices to include dividends and interest rates. If there was an advantage to buying one vs the other, speculators would buy one and sell the other and make free money. In fact, since IB doesn't give you interest on the first $10,000 (and less than the full interest rate above that), the ES future assumes you are earning interest, therefore the ES will actually underperform the index for you.

The only reason I see in your situation to go with the ES future is if you want the added leverage. Otherwise, if you plan on holding for more than a year, go with the SPY to get the long term capital gains rate instead of the 60/40 allocation. If you'll hold for less than a year and don't mind doing the rollovers, the futures are the way to go, but make sure you are sufficiently capitalized. By that, I mean if you put the minumum balance into the account and the market moves against, they could close your position.

 

[cunparis]

Quote from newbunch:

First of all, IB does not have automatic rollover of futures positions. They only have automatic rollover of the quotes. Many have been fooled by this. You have to rollover the positions on your own.

What happens if we forget? In the case of S&P, do we end up with 1 share of each company in our account?

Or even worse, Gold. Would gold bars be arriving at my door?

I've actually googled for this and couldn't find out what happens.

The only reason I see in your situation to go with the ES future is if you want the added leverage. Otherwise, if you plan on holding for more than a year, go with the SPY to get the long term capital gains rate instead of the 60/40 allocation. If you'll hold for less than a year and don't mind doing the rollovers, the futures are the way to go, but make sure you are sufficiently capitalized. By that, I mean if you put the minumum balance into the account and the market moves against, they could close your position.

Thank you very much for the detailed reply. I wouldn't hold for a year, so the futures would be taxed 60/40 which would be another advantage that I don't think anyone mentioned.

Really my main reason for wanting to do a future contract was to get the leverage. For example I bought UNG, rather than tying up my money in this hopefully long term trade I think I should have bought QG. Then I could use the money for my other strategies.

Also doesn't the futures settle each day? meaning if the future goes up, we get cash credited each day? If so that'd be another advantage, because that cash could be used for another strategy.

The only disadvantage I see is the rollover. And I'mthe type that would forget it. And having this fear in the back of my mind would be a bit stressful.

 

[newbunch]

In that case, it sounds like futures would be best. The only negatives are not earning the "market" rate of interest on your cash and rolling over. If you forget to rollover, the broker will automatically close your position. It won't open a new position in the new contract month. I've never not rolled over, so I don't know exactly how or when this happens.

Don't you use a calendar program (Outlook) that you can use to remind you to rollover a day or two before the "first notice date?"

 

[cunparis]

Quote from newbunch:

In that case, it sounds like futures would be best. The only negatives are not earning the "market" rate of interest on your cash and rolling over. If you forget to rollover, the broker will automatically close your position. It won't open a new position in the new contract month. I've never not rolled over, so I don't know exactly how or when this happens.

Don't you use a calendar program (Outlook) that you can use to remind you to rollover a day or two before the "first notice date?"

If closing the position is the worst case then that's fine with me. I was worried I'd have a guy banging on my door with a truck full of commodities.

I do have calendar software but I was more worried about when I'm traveling or something like that. It's probably not an issue really, just thinking of worst case.

 

[newbunch]

Quote from cunparis:

If closing the position is the worst case then that's fine with me. I was worried I'd have a guy banging on my door with a truck full of commodities.

I do have calendar software but I was more worried about when I'm traveling or something like that. It's probably not an issue really, just thinking of worst case.

If you don't trade too often, just roll them over before you leave if you'll be traveling during rollover period. The reason to trade the current contract is that all the volume is there. But if you won't be trading for a while, who cares where the volume is?

 

[daniel33]

I like to trade indices but since future are way too much leverage for me I stick to ETFs.

Could someone please be kind enough to post a list of the major ETFs out there with very good volume ?

Thank you for your cooperation.

Daniel

 

[cunparis]

Quote from newbunch:

If you don't trade too often, just roll them over before you leave if you'll be traveling during rollover period. The reason to trade the current contract is that all the volume is there. But if you won't be trading for a while, who cares where the volume is?

This is an excellent point. I hadn't thought of that.

 

[cunparis]

Quote from daniel33:

I like to trade indices but since future are way too much leverage for me I stick to ETFs.

Could someone please be kind enough to post a list of the major ETFs out there with very good volume ?

Thank you for your cooperation.

Daniel

If you don't need the leverage then ETFs are good. SSO gives you 2x the return of SPY.

If you like leverage but not as much as futures, you're not obligated to use it all. For example if you have $60k to invest, you can buy 1 ES contract and put the rest in a money market fund or another "safe" investment. So with futures you can get whatever leverage you want up to the maximum.

SPY, QQQQ, & DIA are the main indexes. I like the leveraged versions.