Security Futures Overview
Single Stock Futures - 25 April 2006
Security futures is the term used to collectively describe futures on individual stocks, narrow based indexes and Exchange Traded Funds (ETFs). These products are now trading in the U.S. and represent an important new tool for professional traders. Security futures enable money managers, ... read more

Single Stock Futures
Single Stock Futures - 25 April 2006
Single stock futures (SSF) are futures contracts on individual stocks. A OneChicago single stock futures contract is an agreement to deliver 100 shares of a specific stock at a designated date in the future, called the expiration date. In most cases, four expiration dates are ... read more

Advantages of Single Stock Futures
Single Stock Futures - 25 April 2006
1. With margin requirements of 20%, single stock futures provide a highly capital efficient way to participate in equities 2. You can sell short on a downtick (no uptick rule) 3. Short sellers may benefit from eliminating the costs and ... read more

Substitution and Hedging in Individual Accounts
Single Stock Futures - 25 April 2006
Basic hedging: After large price gains, an investor may anticipate that a stock will trade sideways for a time. Rather than selling the position, the investor could hedge by selling single stock futures. This strategy protects against price depreciation, while preserving ... read more

Volatility Hedging
Single Stock Futures - 25 April 2006
Anticipated and unanticipated corporate events such as earnings announcements, FDA rulings, mergers and acquisitions, and regulatory actions can trigger volatility. Suppose an institution is long a technology index futures contract and one of the companies in that index is scheduled to release its ... read more

Diversification
Single Stock Futures - 25 April 2006
Diversification is a cornerstone of modern portfolio theory. Successful diversification should in theory not only enhance returns, but also smooth their expected path. This is the objective of most investors who construct a sophisticated portfolio. The efficiency of security futures ... read more

Benchmark Overlay
Single Stock Futures - 25 April 2006
Many fund managers allocate their assets to a number of outside professional asset managers. A subtle risk for the fund, however, is that each manager will keep a small portion of its assets in cash. This cash reserve can result in tracking error and under-performance by the fund. The difference that arises from this ... read more

Managing Expiration Dates
Single Stock Futures - 25 April 2006
All futures contracts have expiration dates. There are three basic approaches for managing the expiration of futures contracts: Offset your position: Prior to expiration, you may offset by covering (buying back) a short position or selling a long position. You don't ... read more

Security Futures Pricing
Single Stock Futures - 25 April 2006
Single stock futures prices generally conform to a theoretical pricing model based on the following formula: Futures price = stock price x (1 + annualized interest rate - dividend) Futures will typically trade at a premium to the stock price because of an adjustment for interest rates. The ... read more