| Have you heard of the options that deposit directly to your account?͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ |
Below is an intraday Chart of SPY for Friday, August 30.
The chart is set to Mountain Time as I live in Boise, Idaho
Below is an intraday Chart of SPY for Friday, August 30.
The chart is set to Mountain Time as I live in Boise, Idaho. The Market opens here at 7:30 AM and closes at 2 PM. While I consider this the best trading hours in the country (not too early with so much of the day left to enjoy afterwards) the Price Action is what's important.
As you can see below, the Market chopped sideways for the first hour or so and then sold off for almost 2 hours before heading higher with little interruptions going into the Close.
Imagine you Bought to Open (BTO) a Call option sometime around 10:30 AM Mountain (12:30 PM Eastern Time). Choose whatever strike price you want, it's your imagination. But now comes the hard part Selling to Close (STC). Study the
chart, pick your exit point for whatever reason. Whatever reason you chose to Exit your imaginary Call Option is proof that you
should QUIT Trading SPY Options. Because no matter how hard you imagine, the price you hope to get would not be as good as you would have liked it to be.
If you used a Limit Order, you might not have gotten filled. If you used a Market Order, the Market Maker on the opposite side of the trade would certainly nick you a little bit. It's called "Slippage". More correctly, though, it's called "Negative
Slippage." This is where you get filled at a much worse price then you deserved. Now let's run the same exercise with SPX and XSP. These are both Cash Settled Indexes. Just like SPY, you have to Buy to Open (BTO). But unlike SPY, you do
NOT have to Sell to Close (STC). Instead, you can take them all the way to Expiration. At the end of the day, however much your Imaginary Call was In-the- Money (ITM) that much money would be deposited into your account.
SPX Closed the day at $5648.40. XSP, which is 1/10 the size of SPX, Closed the day at $564.84.
Now I realize if you've been trading SPY, you're used to it trading in the hundreds of dollars. Jumping up to SPX means the size of your trade is 10 times as much. As such, you might not have enough of an imagination to buy an SPX $5600 Call which ended up Cash Settling for $48.40 ($4,840 per contract). So instead, let's imagine if you bought the XSP $560 Call.
As you can see by the chart below, the XSP $560 Call traded for under a half dollar at the Low of the Day (10:30 AM Mountain/12:30 PM Eastern). Buying to Open (BTO) at the Low of the Day takes a better imagination than I have. But let's say you use a Limit Order to buy for $1.00. There was a period of time of over two hours in which your Order should have Filled.
Now don't look at the Chart below and imagine you Selling to Close (STC). You don't have to. With Cash Settling Options, all you have to do is take it to Expiration (end of the Day) and whatever the Intrinsic Value is, will be deposited into your Account. In this instance, $484 per contract.
the beauty of Cash Settled Options is that you can let a position go all the way to the End. You don't have to fight with a Market Maker. You don't have to risk being Cheated (Slippage). And for any traders with a Small Account, taking Cash Settled Options to Expiration does NOT count as a Day-Trade!
But if you want to try and argue saying that you've had so much success at SPY, and that you don't want to QUIT, I would take that argument, and twist it back on you. If you're skilled at trading SPY, you should still QUIT! Take your experience your knowledge and know-how and learn to trade SPX & XSP.
Thanks and Good Trading,
Chris Verhaegh
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