Questions about ES options

A

archer001

I new trader for ES, I am wondering whether options can be used to replace the stop loss order for ES?

question 1. In the contract specification, it says: 1 point = .01 index points = $0.50

My understanding is, take ESM7 for example:
The current price of ESM7 is 1493.25.
Suppose I want to set the stop loss to 1485. Then I can buy a 1485 put. Because Each option contract contains 100 options, and 1 point = .01 index points, so 1 option contract give you the right to sell one futures contract, and thus a exactly euqal to the stop loss order?

Question 2> I find this on CME.com:
European-Style End-of-Month (EOM) Options. CME says it "complementing American-style quarterly and serial month options on CME E-mini S&P 500 futures"

But I did not find the american style option. Where is it?
 
Stop! Do not use options as a substitute for a stop-loss order. You're going to generate unnecessary trades, commissions, fees and slippage. Besides, you might have trouble initiating the option trade when the underlying contract moves down to your stop/strike price.
 
while I think using options has an advantage: when the price reach the stop price, still keep the potential that the price may bounce back, suppose you are swing trading.
While for stop loss order, you jare just out.
So for a long term trading, may be option is better?

and my other questions is whether 1 contract of ES options can be used to exactly hedge one ES futures, becomes I am a bit confused by the contract specification.

and another question is where is the other kind of ES option other than the EOM european option?

Anyone can help me on this? thanks a lot!


Quote from nazzdack:

Stop! Do not use options as a substitute for a stop-loss order. You're going to generate unnecessary trades, commissions, fees and slippage. Besides, you might have trouble initiating the option trade when the underlying contract moves down to your stop/strike price.
More...
 
I agree with Dack, this is a bad idea. With each tick on the ES at $12.50 per contract, hoping that your position 'bounces back' can blow out your account before that even happens.

Unless you plan to trade with 0 leverage, not having a stop loss on your actual futures trade is asking for a margin call.

When you are proven wrong, get out of the trade. You can always re-enter.
 
May be I have some wrong understanding: with the option position as the hedge, if the price won't bounce back, will the loss be kept constant? Do you mean the broker will liquidate your futures position, even if your option position produces profits?

About the re-entering, if the price have several up and down, may be re-entering becomes more expensive?

I will be glad if you tell me I am wrong:-)

Quote from brownsfan019:

I agree with Dack, this is a bad idea. With each tick on the ES at $12.50 per contract, hoping that your position 'bounces back' can blow out your account before that even happens.

Unless you plan to trade with 0 leverage, not having a stop loss on your actual futures trade is asking for a margin call.

When you are proven wrong, get out of the trade. You can always re-enter.
More...
 
Quote from archer001:
May be I have some wrong understanding: with the option position as the hedge, if the price won't bounce back, will the loss be kept constant? Do you mean the broker will liquidate your futures position, even if your option position produces profits?

About the re-entering, if the price have several up and down, may be re-entering becomes more expensive?

I will be glad if you tell me I am wrong:-)
More...

Few things here arch:
First, spend some time at www.cme.com and www.cbot.com

RE: your questions
A futures broker is not going to care if your options hedge is making money. They only care about the futures trade that is put on. Now, a firm like IB that does both, I do not know if they allow the futures position to run since the option is making money. Good question.

Assuming they are not going to 'borrow' your winning options position to offset the futures loss, they will liquidate you at some point. Each broker is different as to where and when they will liquidate you.

As for the costs of trading, those are so minimal they should not be a factor in your decision making. You can easily get $6/round trip or lower trading the ES, so the commission cost is next to nothing.

So, if the broker will liquidate you, here's your options:
1) Trade the ES and put stop loss on the ES. You can re-enter trades w/ no problems at all.
2) Trade the ES and buy/sell enough options that will cover your futures trade. How many you need to buy, I am not sure. It may end up requiring quite a bit more capital depending on how many ES contracts you trade. Remember that while the margin required to trade 1 ES contract is low and account opening minimums are so low, you are actually controlling much more in terms of dollars. Translating that into options will take some work to say the least.
 
You can always play the ES using its options. E.g. in IB you can select to close the option when a given ES price is hit. That way you can have wider stops as the delta of the option chosen is probably less than 1.

One point on the ES option is $50, but the bid/ask spread is wide, so you will loose some when enetering and exiting. That usually hurts.

Cheers.
 
Quote from archer001:

I new trader for ES, I am wondering whether options can be used to replace the stop loss order for ES?

question 1. In the contract specification, it says: 1 point = .01 index points = $0.50

My understanding is, take ESM7 for example:
The current price of ESM7 is 1493.25.
Suppose I want to set the stop loss to 1485. Then I can buy a 1485 put. Because Each option contract contains 100 options, and 1 point = .01 index points, so 1 option contract give you the right to sell one futures contract, and thus a exactly euqal to the stop loss order?

Question 2> I find this on CME.com:
European-Style End-of-Month (EOM) Options. CME says it "complementing American-style quarterly and serial month options on CME E-mini S&P 500 futures"

But I did not find the american style option. Where is it?
More...


I am going to avoid the temptation to give you "advice", since I assume that if you are trading the S&P--even the e-mini--that you are comfortable with the risk:

1. LONG ES + LONG PUT= A SYNTHETIC LONG CALL.
If you buy the 1485 put and are long the ES, that is same as being long a 1485 call. If you are opening a new position and that's what you want to do, then just buy the 1485 call.

You would be long vega, long gamma, and long delta. The worst that can happen is that the ES closes at 1485 or below, and you lose the entire premium. You hope would be that ES closes not just above 1485, but at a level above (1485 + price you paid for the put).

Is buying the put the same as a stop loss? Yes and no. With the put plus ES long your max loss is the put prem plus loss from the ES down to 1485. If you go long at 1493.25 and buy the put at, say, 20, your max loss is 20 +8.25, or 28.25.


With the stop loss, you probably will get out at 1485, with a loss of 1493.25-1485, or 8.25, but that is NOT a sure thing.

Sometimes the ES does gap down, and there is no guarantee that a simply stop loss will get you out of the long ES contract at 1485.

2. ES options have a spread that is often wider than 0.25, the typical spread of the ES itself. Sometimes the options can have a spread over 1.00. That's $50 per option.

Good luck.
 
In addition to what others have said, consider the following:

1. Stop-loss does not cost money; buying put does.
2. Stop loss suffers from whipsaw; put does not;
3. Stop loss won't save you from potential huge gaps; put may.
4. Stop loss can be adjusted at little or no cost; not so for puts;
5. Stop loss is immune to the greeks; put is not.
6. and other diferences; please fill in.

Nothing is perfect in the market place.




Quote from archer001:

I new trader for ES, I am wondering whether options can be used to replace the stop loss order for ES?

question 1. In the contract specification, it says: 1 point = .01 index points = $0.50

My understanding is, take ESM7 for example:
The current price of ESM7 is 1493.25.
Suppose I want to set the stop loss to 1485. Then I can buy a 1485 put. Because Each option contract contains 100 options, and 1 point = .01 index points, so 1 option contract give you the right to sell one futures contract, and thus a exactly euqal to the stop loss order?

Question 2> I find this on CME.com:
European-Style End-of-Month (EOM) Options. CME says it "complementing American-style quarterly and serial month options on CME E-mini S&P 500 futures"

But I did not find the american style option. Where is it?
More...
 
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