Trading the SPY (SPYDER)
BPA trading room Q&A: October 12, 2016
Question: Do you think it’s okay to trade 5,000 shares in the SPYDER using price action?
Audio duration: 2min 27sec
SPYDER equivalent to ES Emini
Absolutely. The SPYDER is exactly the same as the Emini, and 5,000 shares is a very common position size in the SPYDER. 5,000 shares in the Emini is equal to 10 Emini contracts, and that is really popular. Every 500 shares in the SPYDER is equal to 1 Emini contract, so 5,000 is equal to 10.
I would say 15 years ago, more traders were trading the SPYDER than the Emini, but now I think much more volume goes into the Emini. Part of the reason why traders were trading the SPYDER 15-20 years ago instead of the Emini was the tick size in the SPYDER was 0.1, one-tenth of a tick, and the tick size in the Emini was 0.25, so the tick was two and a half times bigger in the Emini.
SPY popularity waned
In a way, you have to risk more. You’re getting in later, so if you’re buying above a high in the SPYDER, you’re getting in 1 tick above, so 0.1 above. If you’re buying above that same high in the Emini, you’re buying 0.25 above, so you’re buying 0.15 higher. That was the logic years ago.
But that’s when the Emini was trading at 200 and 300. Now that it’s trading at 2,000, that advantage of the SPYDER is gone. I believe everybody, all the computers just trade the Emini.
False breakouts in SPY
I think it’s perfectly fine to trade the SPYDER; there’s no problem trading 5,000 contracts. But the downside of the SPYDER is there are more false breakouts. A lot of times things will happen in the SPYDER, the market will go 1 tick above a bar in the SPYDER, but it will not go above the bar in the Emini because it has to go 2.5 SPYDER ticks above to trigger. So a lot of times in the SPYDER, you’ll have things that trigger for 1 or 2 ticks, but they do not trigger in the Emini.
More dollars traded in Emini
I think the Emini has more dollars trading it, and therefore more reliable. So there’s a higher incidence of bad trades, also a higher incidence of, I think, more slippage in the SPYDER.
The only way I trade the SPYDER now is with options, which I do pretty regularly. But I rarely ever take an outright trade in the SPYDER.
Okay, hope everybody has a good night.