Need a quick lesson on E-Minis

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DisciplinedHedg

I know there are many e-mini traders here.

I'm an extensive stock and options trader, so dont need a lesson there. But I've never bothered learning about how to trade futures and e-minis.

I've already browed the CME website looking for a quick summary of e-minis, but theres a lot of chaef there.

Can anyone describe in brief what they are, and the difference to options?

I have a fairly large account so don't really need the tremendous leverage. And I know you can trade e-minis overnite. Other than that, any specific reason to trade e-minis over options?

Thanks...
 
I trade options as well, and they have the advantage of limited risk. When you buy an option the most you can lose is your premium. When you buy a futures contract you can lose a whole lot more than what you put down.
 
I used to trade options a long time ago, and this is why I
switched to futures.


When I bot an option, the "time premium" always screwed me.


For example, say I bot an OEX call option for 10 and the market is
at 500.00 (or something). Well, if the market moved to
510.00 my option might be worth 12. Whoop-de-do, the
market goes up 10 points and I get 2.

However, if the market goes "down" 10, my option's worth
about 4.

So, then I tried "writing" options. Works okay if you don't
mind waiting 3 months for a 1/4 point with a stock like GM or
something. But, if you want the meaty options, the volitility
swings will eat you alive.


Now, with futures I get point for point, profits and losses. The
price goes up a dollar, I make a dollar. The price goes down a dollar, I lose a dollar.



I'm not saying option trading is inferior to futures trading, I'm sure lots of traders do very well. This was just my experience.
 
I had the same bad experience in the beginning and I had to stop trading for a few months to figure out what the heck was going on.

Basically I was getting screwed because I was paying too much. I was right on the stock but wrong on the option. Also I don't use market orders to initiate positions anymore because I very rarely would get a great fill. Now I put in limit orders at a price that according to formulas and my TA of the stock would represent a good price, and if I don't get filled oh well. Ever since I started doing these things my win/loss percentage has gone up to acceptable levels.
 
well, there are so many differences so I don't know that anyone could answer the question perfectly...For instance, if you are doing spreading in options looking to profit on where the market is NOT going, then you are using options in a manner completely opposed to the directional exposure of futures...I would imagine that if you are looking to make directional bets, then your best bet would be to simply trade futures...Now, if you are looking to make directional bets with low implied volatility (i.e. beginning of April when puts were cheap), then you can get the best of both worlds with options...

As far as advantages...futures trade "tighter"...with the exception of QQQ options...you get a bigger payout when right relative to trading some OTM options...you are basically getting paid for and/or losing based solely on directional bets and trade management...Options have that other side of the coin where you have to make sure you are capturing the volatility correctly as well...

There is also the psychological component...Some people do not like the open ended risk of futures, so they try to create synthetic equivalents with a capped risk on the trades...This can work as well, but it is not simply directional options trading; it is sophisticated and not really a fair basis for comparison between the two...

I remember hearing from a guy a few years back(not sure whether true or not), but following the Crash of 1987 alot of former floor traders at the CME went over to the CBOE because they had lost their mental edge in taking on the open ended risk of trading futures contracts and taking on outright positions...Options traders do not have that same set of fears, but they face the possibility of the different nemesis of time decay,etc,etc...

So, basically, it just depends on how you are using options...
 
Originally posted by dotslashfuture


Also I don't use market orders to initiate positions anymore because I very rarely would get a great fill. Now I put in limit orders at a price that according to formulas and my TA of the stock would represent a good price, and if I don't get filled oh well.
More...


Yea, looking back...I think I could have done much better using
limit-orders, and taking the time to use formulas to determine an options "true value".
 
Originally posted by Breakout

When I bot an option, the "time premium" always screwed me.


For example, say I bot an OEX call option for 10 and the market is
at 500.00 (or something). ... the
market goes up 10 points and I get 2.

However, if the market goes "down" 10, my option's worth
about 4.

So, then I tried "writing" options. Works okay if you don't
mind waiting 3 months for a 1/4 point with a stock like GM or
something. But, if you want the meaty options, the volitility
swings will eat you alive.
More...
I understand the problems you encounted with options. However, it is important to understand that the instances you cite are not what I would consider "tradeable". They are risky, and they do not give you much of a fighting chance.....(compensated for by unlimited upside on the purchase...but you can say the same about lottery tickets).

The beauty of options trading is that there are strategies that do give you either a high probability of success (sometimes as much as 100%), or a very low risk with a possible reward that far outweighs this risk. Nowhere else, other than some arbitrage strategies that very few of us have the resources to excecute, can you find truly riskless trades.

I recommend reading Options as a Strategic Investment...by Lawrence McMillan. He has other books as well, but OSI is the standard "textbook".
When I worked on the floor of the CBOE, essentially every market maker had a copy of this book somewhere close at hand. Mostly used as paperweights or whatever, but still, the book was there.
The strategies covered in the book are not for amatuers. Customer margin requirements and high commisions make most strategies impractical. But for prop or firm traders, I believe that there is great opportunity in options if your firm lets you trade with BD requirements.
 
Originally posted by vulture
I remember hearing from a guy a few years back(not sure whether true or not), but following the Crash of 1987 alot of former floor traders at the CME went over to the CBOE because they had lost their mental edge in taking on the open ended risk of trading futures contracts and taking on outright positions...Options traders do not have that same set of fears, but they face the possibility of the different nemesis of time decay,etc,etc...

So, basically, it just depends on how you are using options...
More...
I can tell you that on Nov 19, 1987, options market makers got clobbered as well in MANY instances. The volitility made the numbers just crazy. Calls went up as the market went down in many time frames that day.
Trades were still being settled between MMs in the bathrooms and lounges and elevators at 4am.
 
I figured that Natenberg's book, "Options Volatility and Pricing" was more popular amongst the market maker bunch since it gets a bit more into the stats, etc...Either way, my all time favorite was Cottle's "Options Perception and Deception"...This guy just takes options to another galaxy...

I agree with what you said about options regarding structuring risk...It is just another mindset, imo...The planning, adjustments, monitoring, they all take a completely different mindset...The directional simplicity of doing outright positions just lessens the pressure of constantly monitoring positions and trying to adjust them...I used to love coming up with different types of spreads, structured and layered wingspreads across a bunch of strikes...I always went out of my way talking to guys who traded alot of inventory on the floor and how they would structure their positions...If nothing else, the fact that options offer so many different possible combinations of exposures is fascinating and well worth the investigation...
 
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