the open interest for SPY and SPX options is much much greater than ES. why. ES seems better: it trades 24/5 . it is bigger than SPY which means less commissions
Why do so many ppl trade SPX and SPY options instead of ES
- Thread starter tradelosses
- Start date
One reason to trade SPX is the cash settlement. If your strategy involves holding to expiration, you need a huge amount of cash to meet the margin requirements when the ES futures are delivered to you, plus you have pin risk. With SPX you just get the cash amount the option was in the money, with no second commission to exit the resulting position.
No, the big reason is spreads. SPX and SPY are big with the "retail" crowd because you can trade calendars much easier. With ES most platforms will not let you trade calendars since different options are tied to different futures contracts. The other reason of course, most investment advisors trade securities accounts for their clients and don't want to open futures accounts. More paperwork, etc.
I trade strictly futures related derivatives for tax reasons and easier accounting.
SPX options are 1256 contracts so the tax is 60/40 same as ES. SPY obviously are not.
Greater granularity. At >$100k notional, ES is big relative to typical account sizes on this board.
That's true if you're talking about ES futures. The OP's question was about options. If you have options on an ES future you take delivery of the future if you're in the money on expiration. If you had a 5 point vertical spread that required $500 in margin, you'd need around $2,600 to take delivery of the ES future if you were in the money. Or basically 5X more capital to do the same trade with SPX where you simply get the amount in your account in cash. Plus there's the pin risk if you're really close to being ITM and you're not sure if you'll be exercised or not so you can't offset the futures if you wanted to.
Again, the OP asked for reasons and this is a reason if you happen to be operating in this narrow segment of the market. Since there are plenty of traders in that segment, it explains some of the volume in SPX, again going back to the OPs question. I'm certainly not advocating for SPX options as superior in all cases.