Today, Tom Sosnoff and Tony Battista look at the difference between trading the S&P 500 cash (SPX) the SPY Exchange Traded Fund (ETF), and the Futures /ES.
1) SPX
CURRENT QUOTE = 2120.61
NOTIONAL VALUE = $212,061
ADVANTAGES = Larger size ideal for larger accounts (less commissions for equivalent size), possible tax advantages, no assignment risk
DISADVANTAGES = Size may be a disadvantage for smaller accounts, Inability to trade options overnight
2) SPY
CURRENT QUOTE = $212.40
NOTIONAL VALUE = $21,240
ADVANTAGES = Smaller size is ideal for smaller accounts, Ability to scale in and out of positions, Normal Friday Expiration, Penny wide markets
DISADVANTAGES = Small size may mean multiple commissions for larger accounts, Inability to trade options overnight, Dividend risk
3) Futures (/ES)
CURRENT QUOTE = 2118.50
NOTIONAL VALUE = $105,925
ADVANTAGES = Large potential return on capital invested, Possible tax advantage, Longer trading hours (overnight)
DISADVANTAGES = The small buying power reduction may be misleading since it may increase significantly
As expected, the max profits for the Straddles for the different products are equivalent to their notional sizes (e.g. SPX notional size is 10 times the size of SPY and twice the size of /ES and thus, so are the potential max profits). The Futures (/ES) had the best return on capital (ROC).
The takeaway is we lean toward the SPY for efficiency (tight spreads), flexibility and more volume across all strikes. Tom said, "No question we choose the SPY almost exclusively. Having the SPY as part of your rotation/inventory is really important." Tom added, that in regards to market awareness, "The /ES Futures are the leading product in the world and should be the number one thing on your market view page."
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