[quote=Chris Scoreboard Johnston]I should have proofread what I typed before posting it but that is really semantics. They are both vehicles for trading the same thing so it is irrelevant. What you clearly are misinformed on is the practical side of this.
As a professional trader who routinely trades these vehicles side by side I could easily prove through hundreds of actual trades made the relative lack of liquidity and poor fills in the SPY vs the futures. The minimum tick value might be one thing but where the fills actually occur is quite another. I can easily move a 50 lot in the futures without moving the spread at all but no way could you ever trade an equivalent position in the Spiders with the same effect. There was a year where I traded the same trades exactly entered at the market with these two different vehicles at the same time, and there was an over 20% difference in the gain at the end of the year, case closed. Trust me from someone who has done this for 25 years, SPY’s are much less liquid than the futures, especially now in this environment.
Options are the most illiquid choice available, and also have the time value decay problem, but I suppose better than doing nothing at all.[/quote]
You state above that you “routinely trade these vehicles side by side”, but your original post states you don’t trade SPY’s due to liquidity and are unsure of their restrictions. So which is it?
As to being misinformed on the practical side; trading 50 SP lots clearly puts you into an instituitional category (or highly leveraged). Moving the equivalent 100k+ shares (> $10 million) of SPY’s at the market, using the public bid/ask, would definitely affect the execution price and spread, but lets be realistic, moving blocks that large would be done off-exchange on non-quoted block platforms. For the vast majority of individual investors, to which this thread refers to, liquidity in the SPY’s isn’t an issue, in fact you should be able to move at least $200k worth of SPY’s without slippage, more at the open & close.
Another practical matter is the new T+3 short-selling rule. You state that as the reason to only use index futures, yet that rule only applies to naked short selling, which won’t affect individual (or instituitional) investors who have their broker confirm a borrow before shorting.
