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Why Use The SPY As A Market Gauge?

Posted by Pete Stolcers on July 19, 2006

Option Trading Question

Today I'll address a question I found in the comments. Will Maddox asks, "Why do you use the SPY as a measure of what the market is doing?"

Option Trading Answer

First, let me describe what it is. The SPY stands for the S&P 500 Depository Receipt. Translation - is an exchange-traded fund that holds all of the S&P 500 Index stocks.

The S&P 500 has a great mix of large cap stocks across many industries and consequently it is my benchmark of choice. It is much broader than the DOW Jones Industrials which only contains 30 stocks.

I use the SPY instead of the e-mini futures for two reasons. They don’t expire like the futures contract so there is a price continuum for long-term charting. I also don’t have to reference the month. At a certain point, the back month futures go - front month and it requires more commentary. The second reason has to do with the availability of charts and data. Most people don’t have the futures data.

Option Trading Comments

  • On 11/13, Mervin Pearson said:

    Please send me your 2006 trading record for the Weekly update. 

    Every e-mail I have send you today has been rejected.

    Thanks,

    Mervin

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