Premium on SPY vs ES

D

durcom

Newby question...

I have been trading iron condors on SPY for
a while.

I have been looking at trading options on ES instead
for lower commissions, fewer contracts etc.

I am wondering why there is such a large
difference in premium quoted for ES instead
of SPY

For example, the march 2010 115 call
on SPY is currently trading at 46 cents


The march 2010 1150 call on ES is selling
for $3.90

The SPY has a multipler of 10 (1/10 S&P x
100 shares) whereas ES has a multiplier of 50
so I would expect the premium on 1 ES contract
to be around 5 times the premium on SPY,
but it is about 8.5

What am I missing?
 
Quote from durcom:
----I am wondering why there is such a large difference in premium quoted for ES instead of SPY
----For example, the march 2010 115 call on SPY is currently trading at 46 cents
----The march 2010 1150 call on ES is selling for $3.90
----I would expect the premium on 1 ES contract to be around 5 times the premium on SPY, but it is about 8.5
----What am I missing?
More...
1) You were expecting a value of 0.78 instead of 0.46? (5 x 0.78 = 3.9)
2) The difference in values, (0.46 versus 0.78) or (3.9 versus 2.3) has to do with "cost of carry" or the premium between the S&P cash versus the S&P futures. Variation between the dividend rate and the borrowing rate produces the difference in premiums. There shouldn't be an advantage with one option over the other option. That's what you were missing. :cool:
 
oops! I'm so embarassed!

Forgot about the differences in the multiplier!

Guess the easiest way to "normalize" the comparison
is to divide the premium of ES by 10 (SPY is 100
multiplier on the premium vs. ES 50, and there
is 5 times the risk on ES vs SPY ($50 vs. $10) for
every dollar move in the index...

so done that way I would receive the equivalent
of .39 on ES vs. .46 on the SPY...which makes
the SPY the better deal (ignoring dividends, commissions etc)

thanks for the info...
 
Quote from nazzdack:
There shouldn't be an advantage with one option over the other option. That's what you were missing. :cool:
More...
That's what you are still "missing". :(
 
I was trying to figure out if there was a substantial premium
advantage to using futures options on ES instead of
options on SPY that would make it worth
my while to switch from trading options on SPY to trading
futures options on ES...

(I don't have a futures account so I'd have to set
all that up which would be a hassle)

There doesn't seem to be a significant difference in
premium for me to justify the switch...

commissions can be a factor, but for the small # of
contracts I trade, and because I use a low cost
broker (IB) that is not a big issue...

if there are other issues to consider, let me know,
otherwise I think I'll stick with the SPY's...
 
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