REAL WORLD
Get The Trend
Using The Emini S&P 500 To Trade Options
Here’s a technique one veteran S&P futures trader uses to trade options.
I rarely come across a trader who has not traded options at one time or another. Option strategies come in many shapes and forms, but they are all intended to do one thing: make money. I’ve been trading since 1980 and was at one time one of the largest option traders in the brokerage industry until the crash of 1987, which made me realize that holding a leveraged position overnight could be devastating.
Though I still trade options, I have a totally different perspective on how and when to trade them. First of all, I am an S&P futures trader. I have been trading and following the S&P futures since they began trading in 1982. So I have learned to trade options based on the one thing I know best, the Standard & Poor’s 500 futures.
The S&P 500 futures contracts of the 1980s were very different from those we know today. Because of the boom in technology over the past 15 years, most of the trading done now is electronic, as opposed to the way we used to trade, by picking up the phone and calling a broker or the pit. Not only that, the economy today is now global instead of being country-specific.
These factors have led the trading industry to look at the markets in a broader perspective about how our markets will react with what happens in Europe or Asia. Further, the markets are becoming 24-hour venues instead of the standard 8:30 am–3:00 pm US Central time.
Since the markets are now on a 24-hour basis, we can see how the world values our markets and we get a better understanding on how our markets will perform based on how the world has traded.
Figure 1: direction of global markets. The overall direction of the global markets gives you some clues as to how the US markets will perform.