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I've had access to a real time SP500 cash feed for a while. Perhaps it's not
entirely accurate - but I can say without hesitation that the SPY frequently isn't
priced off the cash. I don't have access to a real time futures feed - but my more
limited information in this market suggests that when there is a large discrepancy
between the cash and the futures for a short period of time (typically in an updraft
or downdraft) - the SPY will trade more like the futures - not the cash. I'm
talking about intraday price movements here - not EOD or longer term price
movements.
Although the biggest marketing push for the SPY is toward longer-term investors - I
suspect that the people who use it the most are institutional hedgers. Otherwise -
I doubt you'd see the kind of trading volume it generates (e.g., more than 6 million
shares today - which is typical). Note that hedgers are making similar use of the
QQQ.
As for the spreads - I don't know what a typical futures spread is - but I know that
the spreads on the SPY can vary dramatically depending on market conditions. In
times when market volatility is low - it's not unusual to see a spread of 1/32.
It's hard to get that kind of a spread today - on a typical "slow day" now - it
might be 1/16 or 1/8. And - when the market is having a roller coaster day - all
bets are off. As with any market - it's usually better to get in and get out when
things are relatively quiet - not when everyone and his sister wants to buy or sell
when you want to buy or sell.
I say all this not for the purpose of trying to teach someone how to trade SPY
effectively short-term - but only to point out some of the possible problems people
trying to trade short term may encounter. I tried trading it short term last year -
and found that these various cross-currents made short term trading very hard. So I
gave it up. I therefore agree with you that short term trading is difficult. I
don't go short - but the advantages you mention in that area make sense to me.
Robyn
Neal Chabot wrote:
> There are three important points to make about the Spiders, which anyone
> who trades short-term would and should know.
> 1. Contrary to the above writer's opinion, Spiders are priced off the CASH
> index. Wait until the last week in June, or go back to the end of March,
> and see for yourself whether the SPY is closer to the index or the futures.
> The big marketing push for Spiders is toward those who are longer-term
> traders/investors in the index mutual funds, not for short-term traders...
> 2. The spread in the Spiders is often at least 10 times that in the
> futures, which makes it very difficult to successfully trade them short-term.
> 3. Spiders can be shorted on a downtick, which gives you an advantage
> that you do not have in stocks. This advantage would be for both those
> who are trying to trade Spiders short-term, as well as those longer-term
> traders who are being panicked by a market freefall and would like to
> hedge positions.
>
> Neal
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