Do market makers in practice really hedge SPX and ES options in SPY or does the reverse occur often?
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No, they would have the same price impact (for a large enough order) since the mkt maker can hedge their SPY position with ES or vice versa — they are very closely related markets!
For a small order you will probably trade more cheaply in SPY due to odd lots, pride improvement etc (although kind of moot since you can’t really do a “small order” in ES, min notional about $190k)
