What are the pros and cons of using the SPX index options versus the ES futures options? Is it simply the added leverage of futures v. index options?
Iron Condors on SPX v. ES
- Thread starter Kirribilli
- Start date
A retail trader doesn't have much choice in the SPX options if they want to sell premium, essentially you have to do IC's on the SPX you don't have the margin to sell strangles. On the ES the margin is so much lower you can just sell strangles/straddles...less commission overall and easier to get in and out. If you want to just buy options or debit spreads then either is fine. The reason I prefer ES options (I'm strictly retail) is that I can trade them nights and Sundays also can easily buy the cash ES to hedge if necessary.
SPX is 100X the S&P Index. ES is 50X the index. Exchange and clearing costs for ES are higher for ES because the dollar amount of the transaction is 1/2 the value of SPX. You have to trade twice as much to earn the same.
Comparing margin is tricky. You have to compare 2 contracts of ES for each 1 contract of SPX. OCC margin for portfolio margin is MUCH better than Span margin for ES. However, there re currently no prime brokers that allow the -8%/+6% shocks that OCC PM requires. They all have house rules to reduce risk and your leverage. There are also very few FCMs that will allow you to use close to 100% of your SPAN margin for overnight short option positions. 50% to 75% is more common.
Both have the same tax treatment. Both are very liquid in times of stress and margin calls . The big advantage to options on ES is that you don't need a big account to get good margin while the assets needed for a PM account start around $125K and most prime brokers that offer PM want over $5M.
1245