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Re: S&P Options on Futures vs OEX options



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On Jun 20, 10:40pm, RobertBu wrote:
> Subject: S&P Options on Futures vs OEX options
> I trade S&P futures and options on S&P futures.  Another trader and
> I were having an email discussion about the merits of various instruments,
> and, having never traded OEX options, I became puzzled contrasting the
> S&P options on futures with OEX options.  At first blush, it seemed that
> S&P options on futures were superior, but with 20 million OEX contracts
> traded last year, there must be some strong positives.
> 
> Q1: What is the cost of building a comparable positions in each?  Given
> the ratio, at first blush it seemed OEX options were more expensive, but
> an email this week hinted that the fees were substantially less for OEX
> options.  True?

At Dreyfus (http://www.tradepbs.com/qsys/web/headers/commish), the
commish for buying puts/calls is $1.75/contract with a $15 min.
So, an OEX 10-lot (which has roughly the leverage of an S&P future),
would cost twice $17.50, or $35 a round turn.  Orders to place
spreads, or sell index options short have to go through a live
broker, and are a bit higher, say $60 a round turn.  The bid/ask
on the at-the-money front month options is usually 1/4 to 3/8.
Since the OEX is about half the S&P, that would come out to
1/2 to 3/4 to be equivalent to the S&P.

> 
> Q2: With no underlying, how does the market maker for OEX options
> stay neutral?
> 
> Q3: Is there arbitrage going on between the S&P options and the OEX
> options or do the two get out of sync?
> 
> Q4: Given that futures tend to lead the cash, are there opportunities with
> OEX options or is the market maker good at pricing?

I've heard that the MM's usually offset their positions with S&P
futures, and that OEX options will tend to move more with the
futures than the cash.

> 
> Q5: Are there any significant differences between the two instruments that
> I may be missing?
> 

OEX options can be exercised early, and are exercised into cash.
They have to be bought with cash, not margined.  They have a 15%
min. margin for short options.  SPX (S&P _cash_) options can't be
exercised early.  If you're selling naked options, selling SPX
options may be preferrable to OEX.  There's the new DJX (Dow Jones
Index) options too.  They're trading quite a bit of volume, and
might be preferrable in a smaller account.

-- 
| Gary Funck,  Intrepid Technology, gary@xxxxxxxxxxxx, (650) 964-8135