I have been looking into SPY, SPXL and SPXS ETF's to swing trade (on a daily chart no intraday). Unfortunately, my Stoploss is too far on the ES contract to trade this without hurting my account in case it goes the wrong way.
What I am not sure is how many shares of SPY I should buy to make an equivalent ES?
I believe that half the value of an ES point would fit my account size, to help me sleep better.
@bobwest how is a Call or Put Option better than purchasing the (outright?) stock?
Purchasing a call or put outright (meaning, you just are long the call or put, not hedged or any other strategy) is not really comparable to purchasing the stock or ETF.
Here are two simple differences:
1. The option will expire. At that point its value is zero. As time goes on, the approaching expiration will cause a decline in price, unless the underlying stock/ETF is in a strong trend to offset that decay. The stock or ETF won't do that. This is not exactly "better," most of the time.
2. The leverage, meaning the size of the profit or loss you have as a percentage of your purchase price, can be enormous. An option doubling in price in a few weeks (or days or hours!) is not unusual. It goes the other way, too, and can go down to zero fairly quickly. This is not so "better" either, although the leverage is a reason that many people will buy options. Usually they are just going to lose, because their directional bet has to be very right, to offset the decline of price over time as expiration approaches.
In fact, a very profitable strategy is just selling the options, not buying them. The buyer will usually just see his purchase price disappear due to time decay, while the seller keeps the money. This is called "selling premium" and can make you a good income, although it is not risk-free either, or it wouldn't be possible to make a profit doing it.
The entire world of options is complex and tricky. If sleeping better is part of your goal, as you mentioned, then you will need to look into it a lot deeper before trying it out, and only with money that you don't mind putting at serious risk. Read a few good options books and then be willing to pay the tuition in the market (that is, take losses) to really learn about them.
If ES is too risky, just buy the ETF and sleep at night.... Stay away from buying the options.
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one other quick thought, on low cost brokers like IB, the commissions are much much much cheaper. throwing 200-500 spy around on IB is going to be 2-4$ a turn, which isnt much different than a future which is going to get you for 2.50$ a turn
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Disregard my comment above. Started with $11k and currently trading ES. It is pretty bold because my stoploss order is above the 3% account rule but I believe I have some "edge" to my trading strategy.
I found a good strategy after a little over (1) year of thoroughly backtesting lots of ideas out there.
What you cannot do is trade futures with scared money, that is why at least some "edge" is crucial.
Right, and most, of course, will. If they didn't, they would be stuck with the loss, not you, because they would still be responsible to their clearing broker, which is responsible to the exchange. If they have to take it, they will go after you for it.
Closing you out is meant to keep the loss down, and it will unless the market is moving too fast for them to get a good fill (definitely happens), and unless there is a trading halt due to a limit down day... which means no one can get out. We came very close to limit down in many of the big equity contracts within the last couple of days.
In most cases, your risk will not be more than your account, but it can happen, and sometimes will.
The point of the original post was that you can (rather easily) lose 100% on your option position, but no more than that -- which is a small comfort -- but it can be more in futures. Just a comparison between the two in terms of max risk. Both can be pretty frightful if you're not prepared for it, and haven't managed your risk well.
True, that is why one should always have a Stop in place. The stop is your risk. It can be more than the stop loss if price gaps badly, but in contracts with sufficient volume I think gaps are unlikely.
I'm not trying to get an argument going , but, while it is certainly good to have a "disaster" stop in place, or at least I do (some good traders don't -- see the S&P spoos thread), it really is not a foolproof safeguard. In a true disaster, you do not know where, or if, you will get filled.
During the flash crash, there was no liquidity at all, and you have no idea where your stop would have gotten filled; probably near the bottom, when some buying finally came in.
Today, you don't know where you would get filled if there were a trading halt due to limit down. Remember, there is a whole lot of volume in ES, but we were within a whisker of being limit down the other day.
Sorry to go on about this topic; by all means, assess your risk profile and make your own decisions about what you want to do. Just trying to fill in some of the details here.
I hope you do well in your trading.
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