SPX or SPY for options

[1245]

Quote from opt789:

With SPY and ES you have an underlying to trade, scalp your gamma (positive or negative), and hedge your deltas.

How exactly do you do that with the SPX as a retail trader? If you don't do any of those things I question whether you are a options trader or just gambling.

Portfolio margin has offsets for trading SPY vs SPX. They are hedged at a ratio of 10 to 1. You can also use the ES contact to hedge SPX but you receive no margin offset.

 

[sle]

Quote from newwurldmn:

SPX options are the most liquid options in the world and SPY is probably second. 1 vol is a big deal. This would be arbed out in 10 seconds if it were real.

I second that - I have not seen any significant (arbable) differences between SPY, SPX and ES ever. There are some financing differences and dividend treatment is a touch different, but all of that is taken into account, all three are super-liquid. If there is any sort of "arb" (at least in statistical sense), it's in the options on the levered ETFs on S&P.

PS. In general, academic papers relating the market opportunities (not models, but actual market conditions) are barely worth the bytes required to transfer it across.

PPS. And no, THE most liquid options are, of course, KOSPI

 

[opt789]

Quote from 1245:

Portfolio margin has offsets for trading SPY vs SPX. They are hedged at a ratio of 10 to 1. You can also use the ES contact to hedge SPX but you receive no margin offset.

My question was rhetorical. My point was that I constantly see new traders ask about SPX vs SPY or ES. If they are asking the question then they are not running their own vol surface analysis and therefore don't really know what a fair price is for an SPX options because the spread is wide. They need to stick to ES or SPY for narrow spreads and direct hedging.

 

[sle]

Quote from opt789:
How exactly do you do that with the SPX as a retail trader? If you don't do any of those things I question whether you are a options trader or just gambling.

These are fungible underlyings, so you can trade a SPY or SPX option and hedge it with ES futures. Plus, an options trader that does not delta hedge is still an options trader, the key difference is that one is trading volatility and the other is trading terminal distribution (there are good reasons to do either).

 

[cdcaveman]

Quote from sle:

These are fungible underlyings, so you can trade a SPY or SPX option and hedge it with ES futures. Plus, an options trader that does not delta hedge is still an options trader, the key difference is that one is trading volatility and the other is trading terminal distribution (there are good reasons to do either).

+1

I put small size on and I don't delta hedge... the delta in my position is part of my desired expression.... there is an unknown cost to isolating volatility out of spreads with dynamic delta hedging.

 

[opt789]

Quote from sle:

These are fungible underlyings, so you can trade a SPY or SPX option and hedge it with ES futures. Plus, an options trader that does not delta hedge is still an options trader, the key difference is that one is trading volatility and the other is trading terminal distribution (there are good reasons to do either).

Ugh, me try be more clear this time. If you knew the answer to my rhetorical question, the question was not meant for you.

Exactly which retail broker is giving 1 for 1 margin relief on SPX options hedged with ES?

I didn't just mention delta hedging, I was referring to any use of the underlying for any reason whatsoever. Although you are very intelligent and I go out of my way to read what you post, I am guessing you have not had much direct contact with newbie retail option traders.

It is an easy bet that someone new to option trading asking about SPX vs. ES or SPY is most likely selling OTM ICs and doesn't think they need an underlying to trade options, thus gambling.

 

[sle]

Quote from opt789:
Although you are very intelligent and I go out of my way to read what you post, I am guessing you have not had much direct contact with newbie retail option traders.

Mea culpa, you are totally right.

 

[newwurldmn]

Quote from sle:



PPS. And no, THE most liquid options are, of course, KOSPI

is it really? I never traded Kospi listed or listed lookalike?

I traded some var.

Would normally trade NKY in Asia.

 

[sle]

Quote from newwurldmn:

is it really? I never traded Kospi listed or listed lookalike?

I traded some var.

Would normally trade NKY in Asia.

Listed are super-liquid, i will look up volumes tomorrow but it's something like twice the ADV of S&P and SPY combined. An interesting fact is that the options are more liquid then the underlying itself (the futures), because of the retail participation in the options market.

 

[489]

Quote from cdcaveman:

... so who cares about the fills when your paying 10 times the commissions...

Classic ET! Who cares about quality of execution, its the commission that is the most expensive portion of the trade. Too funny.