Sorry for the total newbie question here -- I'm familiar with options and have traded them a little bit (though that was a long time ago). I've never traded futures before. With your "more advanced" approach, can you help me wrap my head around what the possible outcomes are of buying/selling the futures contracts? What is the impact to me if I, for example, hold $100k of VOO in my brokerage account, sell futures amounting to $100k total on a sell signal, and then I'm "called" (sorry, don't know what the correct term here is) on my futures? Am I wrong in thinking that I'd be required to cough up $100k or my VOO shares?
Good question - you won't be "called" or anything like that in this scenario as you are effectively market neutral. If VOO goes up, your ES/MES futures value will go down accordingly and your account's net liquidation value will remain unchanged and well above your maintenance margin figure.
The only way to really drop below your maintenance margin is if you are either leveraged long (i.e. more than 100% long) or short (i.e. less than 0% long), and the market moves significantly against you. In that scenario, your broker will automatically start liquidating some of your positions.
That makes sense from the perspective of my brokerage/margin account, thanks! I guess I was also curious about the futures themselves; since they’re a contract to buy/sell just like options, would I ever be required to take an action, assuming I’m holding the futures contract at expiration?
Oh no, you are never required to take an action with equity index futures as they are cash settled every quarter. So whether you have an open long or short position at expiration time, it will automatically disappear from your account with your balance left exactly as it should based on the settlement price.
However, this does mean that you'd need to open an equivalent position in the next quarter's contract to maintain your hedge, if one was open, at expiration time which is regular trading hours opening time on the third Friday of expiration month.
