Daily v Futures Bets

[hagadol]

How does the approach change to between taking daily or future postions ?

What do you have to look out for ?

 

[stevespray]

Daily bets expire, as you'd expect, on a daily basis. Futures bets expire on 3rd Friday of the month you are betting on.
The spread on a daily is normally between 40% - 60% of what you would pay on a future so if you are looking to bet on price movement of more than a day or two then you must use a future, it's simple economics. If you use a daily it will close at the end of every day and you'll need to reopen it. Both daily's and futures should move more or less together no matter what the market does (obvioulsy we're talking about the same underlying market here like dow / ftse / s&p / dax / cac / nasdaq etc etc).
The futures price varies from the daily (also called the 'cash' price) not so much in movement but in value. This is because a futures price on any given product will factor in kown events between the present time (ie the cash price) and the date the future expires. The known events are normally things like dividend payments. An interest rate calculation is also added into the calculation. This interest slowly devalues over the life of the future until as we get almost to expiry there is now interest value left. So the value of the future is something along the lines of.......cash value + interest value - known events (divi's).

Hope this helps,
Steve.

 

[TheBramble]

SS - If you're only taking a 'few days' position, wouldn't it make more sense (if you're SBing) to roll-over a daily position?

As I understand it, the cost of rolling a daily over is pretty minimal (a few 10ths) and if the spread on a daily is.4 to .6 of the future spread it would be somewhat cheaper.

 

[waytogo]

There was another thread about this a while ago (sorry can't remember what the thread was called) where someone had calculated that if you are holding a position for upto about 2 weeks it was cheaper to use the rolling cash. For longer than that the overnight charges make it more expensive, so the future is the cheaper alternative.

 

[stevespray]

I think at the end of the day it comes down to who you are using. Some companies offer 'rolling cash' products so there is no actual charge to roll the position in terms of spreads but there are overnight financing charges. Other adjustments are also make relating to dividends. The initial question obviously related to 'daily' products so I assumed that we were talking about positions which expired on a daily basis. I don't think I've ever rolled a 'daily' before, is this allowable ? If so what have people been charged ? If we were talking about dow then I would suggest that anything more than a day or two would attract enough extra costs to warrant using the futures because apart from the initial extra spread the only costs which are being incured are the interest on the position which is priced into the future.

Steve.

 

[TheBramble]

Just looking at IG - their daily roll-over for the DJ cash (their product) is 3pts (2pts for the FTSE cash).

For daily shares its about 3/100 of a point.

So for the index cash products it's probably cheaper to go with the futures.

 

[hampy]

I also remember this being discussed before I think it was in a thread about Deal 4 Free. The conclusion was if shorting use the rolling cash, for going long and holding anything over 2 nights the future was the better option.

hampy