Trading SPX

[fradav 1]

Kim, I notice you don't trade SPX at all, is it because you prefer to avoid being stuck in a pit-traded index if it moves against you?

[Kim 7,943]

Personally I don't like SPX exactly for the reason you mentioned (doesn't trade electronically), but I know many people trade it very successfully. The spreads look huge but I know that the "real" spreads are much tighter - the problem is that you don't know what the real spreads are because it's a pit-traded product. But again, it's a personal choice, it has huge volume so people find a way to trade it.

[fradav 1]

Ok thanks. I've traded ICs on it before and got bid\ask on the more liquid quarter strikes (25/50/75/00) but struggled with the 10's. I was just thinking as it's typically less volatile than the RUT you must have a reason for choosing the latter for your calendar spreads.

[Mikael 31]

I think for calendar spreads SPY might be a better choice than the SPX because of the bid-ask spread. i have a spx calendar on but it was hard getting filled at the mid for further out months. 

 

although you end up paying more in commissions since you need more contracts to get to the same value.

Edited August 22, 2013 by Mikael

[Mikael 31]

so i'm looking at it this way (assuming you buy at ask and sell at bid, to ensure you can 100% get out of a position)

 

SPX sept quarterly 1650 put 

about 3 dollar spread on 30 dollar option (so slippage is 10%)

10 contracts is about 10 x 1.5 x 2 = 30 dollars in commission (SPX contracts has higher commissions 1.5 usually on IB)

 

slippage cost is 10% of 30k, which is 3000 dollars + 30 dollars in commission = - 3030$ over all

 

SPY sept quarterly 165 put

about 3 cent spread on a 2.9 dollar option (so slippage is about 1%)

100 contracts is about 100 x 0.65 x 2 = 130 dollars in commission

 

slippage cost is 1% of 30k, which is 300 dollars + 130 dollars in commission = - 430$ over all

 

i think it's better to trade on the SPY even though you need to do more contracts...

[Mikael 31]

i found this, not sure if it really works but maybe worth a try?

 

http://indexoptionstrading.alliancemtg.com/how-to-hammer-spx-orders-home/

[Kim 7,943]

i found this, not sure if it really works but maybe worth a try?

 

http://indexoptionstrading.alliancemtg.com/how-to-hammer-spx-orders-home/

I don't think it's true.

 

First, "The reason this works because once you place your single lot order with just 1 put or may 2 at the most and you have narrowed that Greedy market makers bid and ask prices he will have to show that on the screen by law." - this does not apply to SPX. Your order will NOT show on the screen. This is true for RUT, but I don't think it really helps. Your fill will depend on which options the market makers want to hold at this specific moment in time. I have experienced many times (on RUT) fills better than mids, but also many times could not get filled 10 cents worse than the mid. Same for SPX, although I personally have much worse experience with SPX. 

[Gary 20]

Has anyone tried trading options on some of the other futures contracts (like the e-mini S&P 500 or perhaps EUR/USD options)? Just curious how come of the more liquid ones compare with what we're accustomed to.

[Mikael 31]

Hi Gary, i trade currency but through ETFs because there is NO volume on currency pair options. i only trade Yen vs USD so if you look on the currency pair index option on ISE ticker YUK there 0 volume. whereas if you trade the ETF version, ticker FXY you can trade options and the volume is decent.

 

easiest trade of the year is just buy a DITM put on FXY going out to March 14. (i own the Jan 102 put). Everyone knows Yen is going down so just hold the put. Pretty soon BOJ is going to inject some more cash since they still didn't meet their inflation target and we all know what that means

 

you can also sell calls against your put if you feel like it but the extrinsic is pretty dry. but you can squeeze a bit more performance out of the trade 

[dbh21 62]

I was at an investor conference in April and the big talk was about shorting japanese bonds. Bonds over FX probably because the bond yield has to be raised - but they saw all countries trying to devalue their currency to combat japan. A race to the bottom.

 

Turns out you can't short japanese bonds unless you are a hedge fund or other institutional investor - or at least I haven't found a way.

[Mikael 31]

Hi Dustin,

 

you can short JGBs by proxy through a inverse ETN by longing powershares ticker: JGBS 

 

alternatively if you want more leverage you can do the 3X leverage version of the ETN through JGBD

 

unfortunately there are no options available and the volume is quite low, since most retail traders are not familiar with trading bond futures. so the best bet if you want leverage is still shorting the yen through FXY. 

[Mikael 31]

you can also trade bond futures directly but that requires a bit more capital since the margin requirements are very high.

[fradav 1]

Kim, my bids/orders do show on the screen with SPX. The system whereby you only place a single order in (Mikael's link) is a good idea but is commission heavy ($9.95 minimum per trade for me) so it would cost the same for me to sell 5 SPX puts that way versus 50 SPYs.I guess it would work with other brokers if there was no minimum.

[fradav 1]

Regarding bids showing on SPX, I just noticed that this is only the case if you put in a single trade, e.g., a call or a put, but is not the case for a multi-leg trade, such as a spread (for obvious reasons), so that's a simple explanation for the difference we observed.