trading vertical spreads on es

L

Lucias

I am looking for something that I can trade "just like the futures" but with limited risk/reward. I trade at NADEX now and I'm mostly pleased with performance/results. However, I can see a need to where eventually I might need to go to the larger options exchanges.

Typically, I'm looking to hold my trades for 24 hours to 72 hours and would like to limit my risk to around 20 points.

What would be the most efficient way to do this for a long trade? Would you buy call options or a vertical spread? How many points edge would I give up to skew the risk in my favor to say 10 risk, 20 reward? What if I wanted to scalp a spread with say 22 risk and 18 reward, I'd collect the premium on that?

Let's say the ES is at 1295, 1295.25. At NADEX, I always execute at least 1 tick outside the best bid. I'd be executing at 1294.75 and 1295.50 (I give up 4/10ths point, I believe). If I traded spreads at the exchange could I get filled at 1295.25 or even 1295?

Are there interfaces to where I can see the premium priced in points? And place trades using single clicks. The TOS platform is very confusing for me. I could not get the weeklies up.

Any help appreciated. I know that SPY options, e-mini es, and emini weeklies are available.

Due to the short holding periods, it is key that I keep the premium I pay down to a minimum while getting a very high delta and leverage. I think that limits me to the ES vertical spreads.
 
I've asked this before but never really got into it.

Here is a CME bullet point.

http://www.cmegroup.com/trading/equity-index/files/EQ237_Optionstable.pdf

It looks like the weeklies are European style. This won't work for me.

They do have these though:

http://www.cmegroup.com/trading/equ...dp500_contractSpecs_options.html#prodType=AME

Deferred months: 25-point intervals and 10-point intervals. Once the contract becomes the second nearest contract, 5-point intervals will be available.

So, it looks like I can setup a spread with as little as 10 points of total risk/reward.
 
In ToS, try /ES for the E-mini S&P 500 Index Futures. There are series with 1 day left, 2 days left and 9 days left. Not identified as weeklies, but I don't trade it so I don't know the nomenclature.
 
Thanks Howard. Yes, i will need the American style options.

CBOE has a good site with trade tools from all the brokers. TOS is the only one I've found that supports the futures options in the simulator. Unfortunately, I find it more complex then the others.

http://www.cboe.com/tradtool

Howard, if I wanted to size my trades at as little $30 per point would this be possible with the SPY options?

I'm trying to understand why I would use the EMINI vs the SPY options. I'm guessing

EMINI allows for trading during globex
$50 point multiplier

SPY ? Not so sure
 
Quote from Lucias:

Thanks Howard. Yes, i will need the American style options.

CBOE has a good site with trade tools from all the brokers. TOS is the only one I've found that supports the futures options in the simulator. Unfortunately, I find it more complex then the others.

http://www.cboe.com/tradtool

Howard, if I wanted to size my trades at as little $30 per point would this be possible with the SPY options?

I'm trying to understand why I would use the EMINI vs the SPY options. I'm guessing

EMINI allows for trading during globex
$50 point multiplier

SPY ? Not so sure
More...
Can't help you there. I trade credit spreads and prefer European style. RUT, NDX and SPX.
 
Howard, with the European style, you are required to hold them until expiry?

I'm looking for a "futures" surrogate with limited risk/reward and preferably a smaller point multiplier. Ideally it trades at the same hours of the underlying future. I want to trade in and out. I want a 1:1 movement to the underlying or "better". I want to be able to set my risk/reward and customize it, either by reducing my risk on trades where I feel have big upside or I might want to take slightly more risk to get in at a higher better price "to scalp the premium". My average trade span will be 8 hours to 48 hours.

So, I expect I will be mostly buying/selling vertical spreads.
 
Quote from Lucias:

Howard, with the European style, you are required to hold them until expiry?
More...
You might be confusing the exercise rule with a holding rule. I am in and out of spreads on European-style options all the time.
 
Howard, thanks for pointing that out. I was confusing them. So, besides for the Excise rule, what are the real differences? Why do you prefer European style options?

Also, for futures options or any options does my order have to be in 100 or is 1 lot the minimum?
 
Here using TOS, I am verifying what a call would cost me.

market: 1304
strike: 1295
cost: 13.75
break even price: 1308.75
max loss:687.50
max loss include commission: $690.50
max profit: infinite
premium: 4.75 points
premium verify: 4.75* 50 = 237 + 450 (1295 to 1304) = +687

So, I pay 4.75 points premium to have a max risk of 9 points. This is the July contract: so I'm thinking it expires at the end of July but need to check that.
 
For short term trades I question the use of vertical spreads. Vertical spreads work best when you plan you hold your position for a significant fraction of the lifetime of the options, so the short side has a chance to undergo time decay. A spread can lower your delta to an annoying degree if there is a short term move in the right direction.
 
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