Single Stock Futures or SSF are futures contract where the "commodity" is a single company stock, narrow-based indexes (NBIs) or exchange traded funds (ETF). (They've also been referred to as Securities Futures Products.)
Most futures contracts involve delivery of a commodity such as gold, wheat or lumber. For years you could also buy contracts on financial products such as Treasury bonds and euros.
Therefore, SSFs are alternatives to options and, if you believe an equity's price will go down soon, short selling.
You can buy a contract (usually 100 shares of stock and 1000 shares for many ETFs) by putting down only 20% margin. You can sell it any time prior to the expiration date (usually the third Friday of the expiration month). If the stock's market price has gone up, you'll make money. If it's gone down, you'll lose.
If you hold the stock through expiration date, you accept delivery of the shares at the contract price.
While you own the contract, you do not have any shareholder rights and do not receive dividends.
It's just as easy to sell contracts if you think a given stock, index or ETF will go down in market price. Again, you can control the entire contract with 20% down. And you can sell it prior to expiration date.
If you hold that position through expiration date, you must deliver the shares for the contract price. If you were right and the market price went down, you'll make money. If you were wrong and the market price is higher than the contract price, you'll lose.
This type of security was made illegal in the United States because in the 1980s the Commodity Futures Trading Commission and the U.S. Securities and Exchange Commission could not agree on who would regulate them. So in 1982 John S.R. Shad, Chairman of the Securities and Exchange Commission (SEC), and Philip Johnson, Chairman of the Commodity Futures Trading Commission (CFTC), agreed to ban them.
However, the Commodities Futures Modernization Act of 2000, signed by President Bill Clinton December 31, 2000, enabled them again in the U.S. They began trading November 8, 2002. At first they were listed on two different exchanges. But the NQLX consolidated its contracts in October 2004. That means that now in the United States they are listed only on OneChicago, a joint venture of the Chicago Board Options Exchange, Chicago Mercantile Exchange and the Chicago Board of Trade.
They also trade in the United Kingdom, Spain, India and South Africa.
OneChicago currently lists 1828 single stocks. The index are indeed "narrow based" -- typically nine or fewer stocks, not a well-known index such as the S&P 500 or even the Dow Jones Industrial Average. ETFs available include the major ones such as Spiders (S&P 500), Powershares QQQ (NASDAQ) and Diamonds (Dow Jones Industrial Average).
Trades are cleared by The Options Clearing Corporation or the Chicago Mercantile Exchange. Trading is through the Mercantile Exchange GLOBEX or the Chicago Board of Options Exchange CBOEdirect.
There are four expirations months: March, June, September and December. Tick size is $1.
Margin requirements are marked to market daily. So you must be prepared for daily fluctuations. If your position goes against you today, you must post more cash or your broker will sell your contract. You can be right in the long run but taken out in the short run.
However, you must also remember you will pay interest on the margin money.
Single stock futures make sense if you like to short stocks. They make it much easier and convenient to go short.
The SSF also can function as a hedge on your portfolio. If you sell a contract it will go up in value if your stock's market price goes down.
Most futures contracts involve delivery of a commodity such as gold, wheat or lumber. For years you could also buy contracts on financial products such as Treasury bonds and euros.
Therefore, SSFs are alternatives to options and, if you believe an equity's price will go down soon, short selling.
You can buy a contract (usually 100 shares of stock and 1000 shares for many ETFs) by putting down only 20% margin. You can sell it any time prior to the expiration date (usually the third Friday of the expiration month). If the stock's market price has gone up, you'll make money. If it's gone down, you'll lose.
If you hold the stock through expiration date, you accept delivery of the shares at the contract price.
While you own the contract, you do not have any shareholder rights and do not receive dividends.
It's just as easy to sell contracts if you think a given stock, index or ETF will go down in market price. Again, you can control the entire contract with 20% down. And you can sell it prior to expiration date.
If you hold that position through expiration date, you must deliver the shares for the contract price. If you were right and the market price went down, you'll make money. If you were wrong and the market price is higher than the contract price, you'll lose.
This type of security was made illegal in the United States because in the 1980s the Commodity Futures Trading Commission and the U.S. Securities and Exchange Commission could not agree on who would regulate them. So in 1982 John S.R. Shad, Chairman of the Securities and Exchange Commission (SEC), and Philip Johnson, Chairman of the Commodity Futures Trading Commission (CFTC), agreed to ban them.
However, the Commodities Futures Modernization Act of 2000, signed by President Bill Clinton December 31, 2000, enabled them again in the U.S. They began trading November 8, 2002. At first they were listed on two different exchanges. But the NQLX consolidated its contracts in October 2004. That means that now in the United States they are listed only on OneChicago, a joint venture of the Chicago Board Options Exchange, Chicago Mercantile Exchange and the Chicago Board of Trade.
They also trade in the United Kingdom, Spain, India and South Africa.
OneChicago currently lists 1828 single stocks. The index are indeed "narrow based" -- typically nine or fewer stocks, not a well-known index such as the S&P 500 or even the Dow Jones Industrial Average. ETFs available include the major ones such as Spiders (S&P 500), Powershares QQQ (NASDAQ) and Diamonds (Dow Jones Industrial Average).
Trades are cleared by The Options Clearing Corporation or the Chicago Mercantile Exchange. Trading is through the Mercantile Exchange GLOBEX or the Chicago Board of Options Exchange CBOEdirect.
There are four expirations months: March, June, September and December. Tick size is $1.
Margin requirements are marked to market daily. So you must be prepared for daily fluctuations. If your position goes against you today, you must post more cash or your broker will sell your contract. You can be right in the long run but taken out in the short run.
However, you must also remember you will pay interest on the margin money.
Single stock futures make sense if you like to short stocks. They make it much easier and convenient to go short.
The SSF also can function as a hedge on your portfolio. If you sell a contract it will go up in value if your stock's market price goes down.
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