macrocephalopod

It’s not about margin requirements. Those are essentially equal. It’s about cost of carry. 2 distinctly different things.

Ok what is responsible for the difference in cost of carry?

If I buy futures I am effectively long stock financed at wherever the lending rate clears (in practice ~LIBOR). If I buy SPY I need to get financing from my broker, who will charge me ~LIBOR + spread. The spread is responsible for the cost of carry difference.

Every derivative introduces a new parameter required to price it in a model, and the derivative becomes a way to trade that parameter. In the case of options the parameter is implied volatility. For futures/forwards the parameter is the basis (~dividends minus financing)

Prob silly Q, but why cant you use cash to buy SPY? Why would you need financing from broker? Very insightful. Broker spread drives cost of carry. Anything that offsets the benefit of futures? Since they have certain risk SPY itself lacks right?

Imagine a scenario where you are a Mm and you have $100 million and your portfolio margining is only $100 million but your long SpY position was $1billion and your short futures position (or combo) was short notional $1 Billion, you still need ‘Cash’ to fund the spy

I see, so basically it's better to avoid using cash when possible, since it may be needed as collateral / margin for other positions (like futures, which can be a more efficient way to express a trade), assuming Im following

Collateral is different than financing.