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Trading SPY options or ES?
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Trading SPY options or ES?

  #1 (permalink)
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Trading SPY options or ES?

I have what is probably a naive question, but I've spent some time searching through the wiki and forums here and I can't find the answer. It's probably an extremely basic question, but I figured I'd ask anyways.

While in college back in the late 1970s, I discovered Hurst's Profit Magic of Stock Transaction Timing. I spent some time studying that and then I developed a system on a Lotus spreadsheet that used FFT's to time turning points. Once I graduated, going long on puts and calls, I proceeded to turn $4k into $80k in 3 months and then promptly turned $80k into $0k in 4 weeks. Luckily, trading was not my chosen career. I licked my wounds, salved my bruised ego and became a CPA . I have used patterns and Elliott Wave over the past 30 years to move our personal retirement accounts in and out of equities and bonds, to try and improve our return (in Fidelity). But, that's been the extent of my "trading" in the past number of years.

Several months ago, I found myself "downsized" out, with a nice severance, so I have some free time. I've spent the past few months learning NT, refining some strategies, and then I was lucky enough to stumble on here about 2 weeks ago.

I'm only starting with $10k.

If I wanted to trade swings in the S&P500, would I be better off trading in the money SPY options or trading ES?

I have SPY data feed into NT through my Ameritrade account. If I chose to use ES, where would I get the datafeed for NT and which broker would be good? I noticed in some posts that some folks here use Mirus and some use AMP. I've been spammed since signing up here by AMP, so I'm not sure I would want to use them just out of principle.

Thanks for any input.

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  #3 (permalink)
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ETF options are subject to the Pattern Day Trader rule, but that might not be applicable to your trading depending on your holding period. Options on futures, like the futures themselves, are exempt from that rule.

Do your due diligence when it comes to brokers. A lot of the members here use Velocity... Advantage Futures and Crossland are solid firms. There's a thread about Deep Discount Trading, which is an IB (introducing broker ) to Crossland. It seems that they offer the cheapest commissions for low-volume retail traders.

I think most would recommend DTN IQFeed or Kinetick (IQFeed white labeled by Ninjatrader) for quality data at reasonable price. Unless I've missed something, Ninjatrader does not support options orders, though...

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  #4 (permalink)
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well trading "swings" means something different to everyone. i used to trade with someone who traded swings on the 1 minute chart. based on your post i assume you mean overnight and therefore subject to overnight margin rules, so with 10k you can trade 1 lot ES futures as far as i can tell.

if you want to trade higher leverage you can trade intraday ES futures and can find some $500 dollar intraday margin brokers. i'm sure you can find 1 or 2 decent swing trades intraday on the ES.

as far as options go, even if there is a pattern trading rule on index options, which i wasn't' aware of, so many of the stocks are so highly correlated right now that finding a way to trade spy via a proxy wouldn't be hard, it might even benefit you to find one in the weakest sector if short and one in the strongest if long.

anyways i hope that partially answers your question.


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  #5 (permalink)
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Two things to keep in mind. You will not be able to close or open potions with SPY options during the overnight or even after hours, and two the spread on ES options is wide and gets wider over night.

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  #6 (permalink)
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traderlars View Post
well trading "swings" means something different to everyone. i used to trade with someone who traded swings on the 1 minute chart. based on your post i assume you mean overnight and therefore subject to overnight margin rules, so with 10k you can trade 1 lot ES futures as far as i can tell.

if you want to trade higher leverage you can trade intraday ES futures and can find some $500 dollar intraday margin brokers. i'm sure you can find 1 or 2 decent swing trades intraday on the ES.

as far as options go, even if there is a pattern trading rule on index options, which i wasn't' aware of, so many of the stocks are so highly correlated right now that finding a way to trade spy via a proxy wouldn't be hard, it might even benefit you to find one in the weakest sector if short and one in the strongest if long.

anyways i hope that partially answers your question.

In accordance with the Pattern Day Trader rule, you need $25 000 to trade securities, this includes stocks, ETFs and options on those.

With his $10k, he can trade futures and/or options on those.

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  #7 (permalink)
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Lornz View Post
In accordance with the Pattern Day Trader rule, you need $25 000 to trade securities, this includes stocks, ETFs and options on those.

With his $10k, he can trade futures and/or options on those.


you need 25k to day trade in a margin account. he didn't mention if he was trading on margin or not. also you don't need 25k to trade stocks/options, you need 25k to trade on either on margin or to make more than 4 round trips per week. if he is trading option swings without margin and trading less than 4 round trips per week, then this is still possible. so i'm still wondering what his time frame is as he hasn't clarified that.

furthermore if he wants to daytrade options or stocks in a cash account he can do so without the 25k, he just needs to find a broker that offers cash accounts, some brokers only offer margin accounts.



Last edited by traderlars; September 11th, 2011 at 06:27 PM.
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  #8 (permalink)
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Lornz View Post
In accordance with the Pattern Day Trader rule, you need $25 000 to trade securities, this includes stocks, ETFs and options on those.

With his $10k, he can trade futures and/or options on those.

sans le options.

uh, you don't need $25k for options

each broker interprets the PDT vis-a-vis options differently, one, must ask in detailed specific questions of each broker regarding options

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  #9 (permalink)
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Thanks for the discussion.

I think I was a bit unclear in the information I provided, and I didn't provide everything you folks needed to evaluate my question. My intention is to day trade and liquidate by the evening. The options account I have is a cash account, not a margin account. I was wondering whether to trade SPY options, or ES futures. I do not intend to hold any position overnight.

After doing a bunch more research over the weekend, I think ES futures are the better choice.

As was pointed out above, I would not be subject to the PDT rules because it is a cash account. But, if I did two trades a day, I would probably need about $25k-$30k in the account in order to take into account the 3 day settlement. And that would also be allowing no room for drawdown early on.

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