Tuesday, January 5, 2016

The case for /ES (E-MINI S&P 500) vs SPX (S&P 500 STOCK INDEX)

I was looking at ways of hedging the Iron Condors with a similar Futures product.
Similar to SPX there's  a Futures product called /ES. This is 1/5th the size of the SPX but still contains all the 500 underlying companies.
My intention was to use the /ES futures as a sort of hedge against any dramatic movement of the SPX whereby I could salvage some credit rather than roll the trade.
As you can see below , the window of trading /ES is very limited and it requires special trading permissions from your broker.

/ES is an extremely useful indicator to judge which direction the market will move upon opening, albeit for a short time.
Trading futures just like anything is risky and slightly more complicated as you need to understand the product thoroughly before placing the trade.

Here's a comparison of the 2 similar contracts for the Jan 8 expiry 2130 Call .


Now let's look at the credit.
The credit is much better on /ES , but here's the kicker the /ES contract if expiring in the money will result in the physical delivery of the contract.Whereas SPX is cash settled.
Another point is that /ES multiplier is 50 as opposed to 100 with SPX.
Lastly the trading window is 30 minutes on weekdays and 6 hours on Sunday. Not a very great advantage in my opinion.

I wasnt able to review the commission for the futures but it should be the same I believe.

/ES                                                                             SPX

After looking at this a few ways to Sunday, I think i'll pass on trading /ES for the reasons already mentioned, at least for now.

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