Substituting ETF's & Mini-Index Options

 

We have started this shortened trading week with a bang opening a new weekly SPX Iron Condor Spread on the S&P 500 Index yesterday and an NDX Iron Condor on the NASDAQ in the Monthly Trading Service today.

 

Yesterday's weekly SPX spread was 5 points wide requiring $500 per spread traded for Margin Requirements, less the credit received for opening the trade. Today's NDX spread was 25 points wide requiring $2500 Margin Requirements per spread traded, less the credit received for opening the trade.

 

$2500 per spread may be a little steep for some traders. So, as an alternative to lower the per spread margin requirements, one could substitute the MNX for NDX. The MNX is the Mini-NASDAQ 100 which is 1/10 the size of the NASDAQ 100; much like the SPY etf is 1/10 of the S&P 500 (SPX). The MNX tracks the movements of the NDX exactly (again, just like the SPY / SPX) and the substitution can be made by simply moving the decimal to the left one place. For instance, an NDX 2625 strike would be an MNX 262.5 strike.

 

Substituting etf's or mini's can be done across all index products. Credits and premiums are usually similar so there isn't much to worry about regarding matching up the trades as designed. One thing to mention is that commissions are higher when substituting etf's and mini's as more contracts are traded due to the smaller margin requirements per spread versus the larger products and their larger spread widths.

 

Thanks to everyone and have a great day!