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S&P500 - can i use Volume profie, delta, vwap?

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S&P500 - can i use Volume profie, delta, vwap?

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  #1 (permalink)
Experience: Intermediate
Platform: Ninja Trader
Trading: ES
Posts: 3 since Dec 2020
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I saw now that my questions was asked and answered pretty well in other post.

Hi all

I have really struggled last few days - to try to understand this - so any help is so much apreciatet :-)

So - as far as I can understand - the futures like E mini ES and its relation to S&P500 index - is almost constant/locked = the E- mini will follow S&P500 with just a bit lower value.
(please anyone correct me if that is wrong)

If/when that is the case - i can not understand why to use anything related to volume profile, bid/ask, delta, vwap or anything else that have to do with the volume - on the E mini or similar Futures?

Because - if the price will never change as a result of more/less buying on the E mini - then why would you then use anything like that?

I understand that it could make sense to use that on stocks - where lots of buying actually could have an the price going up?

But maybe/hopefully im misunderstanding something completely :-)

Thanks for any reply

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  #2 (permalink)
Experience: Intermediate
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Check this one out, from the VWAP master @JonnyBoy:

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  #3 (permalink)
Fort Lauderdale, Florida, USA
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flindt View Post
the E- mini will follow S&P500 with just a bit lower value.

Well, I believe the difference between the two prices changes over time due to macro influences.

In other words, sometimes it will be higher and sometimes lower, but this difference (and the change of the difference) varies over very long time horizons.

My point is, it's not *always* lower but whether it is lower or higher does not change often. And I'm honestly not sure of the affect as applied to index futures. Maybe it is always lower, and I don't know what I'm talking about. Not sure.

This is called backwardation vs contango. Check this out: https://www.cmegroup.com/education/courses/introduction-to-ferrous-metals/what-is-contango-and-backwardation.html

PS. I see this a lot in trading discussions on the interwebs. Often someone will say something seemingly simple and direct, such as "spot prices follows futures price just a little bit lower". While this is technically true over recent memory, it hides a deeper truth underlying that assertion. I'm guilty of this like no other. Vagueness might lead to more misunderstanding than the complexity actual subject matter. I've seen this a lot in discussions about options dealer gamma exposure and the tail wagging the dog. But meh whatevs. It's unavoidable to some extent.

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  #4 (permalink)
plano TX/USA
Posts: 42 since Feb 2021
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Hi, there is no VWAP, VolPro, or cum delta on the SP500 index (SPX). It is not traded directly. One only trade options of the SPX. /ES is traded directly. Therefore VWAP, VolPro, etc. not only exist, they are quite relevant. They represent the actual buying & selling behavior of vast amounts of capital.

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  #5 (permalink)
Chicago, IL
Posts: 3 since Aug 2021
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Great question. The value of equity futures is not locked. It actually diverges all the time and investment firms use this to make money while at the same time bringing the futures price back into line with the underlying asset. This is done only during RTH via a process called index arbitrage. Basically they sell the higher priced security (say SPY or SPX options) to buy the lower priced security (futures) and in this way the prices are bought into equilibrium and the banks profit from the difference when prices normalize (which they are causing with arbitrage). Obviously there has to be a minimum divergence before it becomes profitable but as soon as it does they act. Divergences are more common and severe during globex as investment banks only conduct arbitrage during RTH.

So to answer your question the volume profile tools do help as futures do have their own fair value and price fluctuates based on bid/ask. Arbitrage just minimizes divergences. Also, volume tools can show you where the big guys are putting their money and I like to follow them as close as possible.

Investopedia has more information but I can't post links yet.

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  #6 (permalink)
Posts: 10 since Nov 2013

micros have same price but lower volume than eminis. Any indicator based on vol or ATR will have a smaller value than the emini and presumably execute less trades with
smaller targets

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  #7 (permalink)
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the original poster edited his initial post with the following:

flindt View Post
I saw now that my questions was asked and answered pretty well in other post.

The questions raised in the current thread have been pretty well covered there, actually. I recommend that anyone interested in the subject refer to that earlier thread.

the derivative instrument (ES), the underlying index (S&P) and baskets of stocks that are meant to represent the overall S&P, all move somewhat in tandem due to arbitrage (buying one side, selling the other). This makes it possible for trading tools that only look at activity on the derivative side (for example, VWAP or whatever on ES) to be useful for trading on that side without reference to trading on the stocks of the underlying S&P index.

An excerpt:

bobwest View Post

On the question of whether it's the derivative or the underlying stock index that moves price, the answer is, both.

The reason there is a futures market is not to give traders something to trade with ( ), it's to allow holders of an asset (in the case of the ES, holders of large baskets of stock that are close to the index in composition) to hedge their asset positions against the corresponding futures contract, allowing them to control their risk. So an asset position in stocks, for example, can be offset by a short in ES, insulating against moves in the stock market, since losses in one side are matched by gains in the other. (There are other strategies as well, but this gives you an idea.)

The two markets are kept in step by arbitrage, buying in one market and selling an equivalent position in the other. The arbitrageurs see an opportunity if the two get out of synch, and will buy or sell a basket of stocks and sell or buy futures contracts, whichever is the opposite action, cashing in on the difference. This will also squeeze the two back together, because of the buying/selling pressure on each side. This way they are never far apart, and it is also true that the balance of trading in either one will move both.

So sure, buying or selling in ES can and does move ES. And that movement moves the S&P. But also, buying and selling in the individual stocks in the S&P can and does move ES.

If you look at ES vs. the S&P, you will see that they are always moving very closely together, and not by accident.

Because the topic is treated in different threads, I am closing this one as a duplicate, to minimize splitting the topic between the threads.

Anyone interested in the topic can follow up on the referenced thread.


When one door closes, another opens.
-- Cervantes, Don Quixote

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