Advantages

Selling A Stock Short

One plus is the ease and diminished expense of taking a short position in a single stock. Selling a stock short in the stock market is relatively complicated and expensive. A short sale in a stock necessitates locating the shares to borrow and paying the broker loan rate of interest. You must then wait for an uptick to sell the stock short. Waiting for an uptick to sell a stock short in a declining market can be frustrating and costly. By the time a particular stock upticks, it could be substantially below the price at which you wanted it sold. However, in the futures market with the SSF contract, you can sell a stock short just as easily as you can buy one. When you sell a stock short using an SSF contract, you don’t have to wait for an uptick. You can sell when you want, without going to the trouble of finding the stock and without the expense of paying the broker loan rate of interest on the shares borrowed.

Risk Management

Selling SSF contracts can also greatly contribute to risk management in an investor’s portfolio with possible tax benefits. Instead of selling specific stocks in one’s portfolio during market downturns, an investor could sell an equal amount of shares in SSF as a hedge against his or her stock position. The ability to hedge a particular stock facilitates holding onto the underlying position in the stock market for longer periods of time, thereby potentially providing investors substantial tax savings in long-term versus short-term gains.

Speculation

An investor without owning any stock could use SSF to speculate outright on an anticipated increase or decrease in the price of a stock.

Margins

One major difference between stocks and futures centers on the role of
margins. For stocks, margins, which are set by the Federal Reserve's
Regulation T, have been at 50% for retail investors and 15% for dealers
since 1974. A stock investor buying on margin borrows the difference, and
can either pay the loan down, or offset it when the security is sold.
Futures margins, which are set by the exchange, don't represent a down
payment on an asset -- but are rather a performance bond from the investor
to the exchange clearinghouse. Margins vary quite widely as a percentage of
the underlying asset, but generally are quite low. For example, the
underlying value of the S&P 500 future is hovering around $335,000, but the
initial margin for a speculator is only $23,438, or less than 7%.
The futures investor doesn't have to pay interest on the remaining 93%;
indeed, futures investors can deposit T-bills and earn interest on 90% of
the deposit with a 10% haircut in their margin accounts.

Cost Advantage

SSF are traded in 100-share blocks, virtually mirroring the price movement in the single stock on which the futures contract is based. A $1 move in an individual stock equals $100 in an SSF contract. There is a big cost advantage here. In order to control shares in a stock, you need to post at least 50% margin and pay interest on the balance. In SSF, all that is required is approximately 20%, or less than half the margin required in the stock market. Additionally, there is no interest charge on buying or selling a stock on margin in SSF. Essentially, you will earn or lose the same in an SSF contract as you would when buying 100 shares of stock.

Commission Savings

In all probability, the transaction costs in buying or selling a SSF contract amounts to less than buying or selling the same 100 shares of stock in the stock market.

Spread Differentials

SSF offers investors additional investment strategies. For example, if an investor feels the price of one stock will decline or rise in relation to another stock he or she can buy a SSF contract on one stock and sell a SSF contract on another, hoping to profit from the spread differential between the two stocks anytime up to the contact’s expiration.

No Clearing Fees on Foreign Markets

Investor can also gain cross border exposure without the expense of going through foreign clearing systems. Will circumvent many of the difficulties faced by investors attempting to trade across jurisdictional boundaries by providing access to UK, European and US shares on a single trading platform.

Universal Stock futures transactions will be clear of costs of accessing settlement systems across international borders

Greater Versatility

SSF allows a trader to potentially profit no matter what direction the market moves. If a trader is of the opinion that the stock market is going to fall, a trader can sell a contract. A profit will be made if the trader then buys that contract back later when the price decreases. This avoids the hassle of stock borrowing. 

Electronic Trading Platforms

SSF will are traded on electronic trading platforms available to the public through the internet. Investors will have universal access to the same sources of information, delivery, and speed of execution that only a few years ago were available primarily to professionals. Price fills are routinely provided in seconds.

Frequently Asked Questions

Are Single Stock Futures better than trading stocks?

An advantage that single-stock futures have over trading stocks is that you can sell without waiting for an uptick. So, when the stock price is dropping, you might be
able to take a short position in single-stock futures sooner than if you
wait for an uptick to sell the stock itself.

Are Single Stock Futures better than trading equity options?

Single-stock futures are more straightforward than equity options, where you have to
decide which strike price to trade within each contract month, a decision
that may involve an analysis of time premium. With futures, it's an easy
decision: Do you believe the price of the underlying stock is going to
higher or lower than the current price indicated by a certain futures
contract when that contract expires? Buy futures if you think the price will
be higher. Sell futures if you think the price will be lower. It’s that simple!

How big are Single Stock Futures contracts?

Each futures contract represents 100 shares of underlying stock. That is the contract size used at LIFFE and by the Chicago Board Options Exchange (CBOE) for equity options.
 

What are the margin requirements for Single Stock Futures?

The initial margin requirements for Single Stock Futures will be 20% of the contract
value. If so, margin would be $2,000 for one contract that represents 100
shares of a $100 stock (contract value of $10,000).

How is a Single Stock Futures contract different from an equity option
contract?

When you buy or sell a single-stock futures contract, you are
obligated to fulfill the terms of the contract upon its expiration (unless
you offset the position before then). When you buy an equity option
contract, you have the right, but not the obligation, to either buy or sell
100 shares of the underlying stock at the option's strike price by the time
the contract expires. When you sell an equity option contract, you are
obligated to either buy or sell 100 shares of the underlying stock at the
option's strike price at contract expiration.

The list for Single Stock Futures

American Express (AXP)
American International Group (AIG)
Amgen Inc (AMGN)
AMR Corp/Del (AMR)
AOL Time Warner, Inc. (AOL)
Applied Materials (AMAT)
AT&T Corporation (T)
Bank Of America Corp (BAC)
Bank One (ONE)
Best Buy Company Inc (BBY)
Biogen Inc (BGEN)
Bristol-Myers Squibb Co (BMY)
Broadcom Corp-Cl A (BRCM)
Brocade Communications Sys (BRCD)
Cephalon Inc (CEPH)
Check Point Software Tech (CHKP)
ChevronTexaco Corp (CVX)
Cisco Systems, Inc. (CSCO)
Citigroup, Inc. (C)
Coca-Cola Company (KO)
Dell Computer Corporation (DELL)
eBay, Inc. (EBAY)
EMC Corporation (EMC)
Emulex Corp (ELX)
Exxon Mobil Corporation (XOM)
Ford Motor Company (F)
General Electric Company (GE)
General Motors Corp (GM)
Genzyme Corp - Genl Division (GENZ)
Goldman Sachs Group, Inc. (GS)
Halliburton Co (HAL)
Home Depot Inc (HD)
Idec Pharmaceuticals Corp (IDPH)
Intel Corporation (INTC)
International Business Machines (IBM)
InVision Technologies Inc (INVN)
J.P. Morgan Chase & Co. (JPM)
Johnson & Johnson (JNJ)
KLA-Tencor Corporation (KLAC)
Krispy Kreme Doughnuts Inc (KKD)
Merck & Co., Inc. (MRK)
Merrill Lynch & Co., Inc. (MER)
Micron Technology Inc (MU)
Microsoft Corporation (MSFT)
Morgan Stanley Dean Witter & Co. (MWD)
Motorola, Inc. (MOT)
Newmont Mining Corp Hldg Co (NEM)
Nokia Corporation ADR (NOK)
Northrop Grumman Corp (NOC)
Novellus Systems Inc (NVLS)
Oracle Corporation (ORCL)
PepsiCo Inc (PEP)
Pfizer (PFE)
Philip Morris (MO)
Procter & Gamble Co (PG)
QLogic Corp (QLGC)
QUALCOMM, Inc. (QCOM)
SBC Communications Inc (SBC)
Schlumberger Ltd (SLB)
Siebel Systems, Inc. (SEBL)
Sprint Corp-PCS Group (PCS)
Starbucks Corp (SBUX)
Sun Microsytems (SUNW)
Symantec Corp (SYMC)
Texas Instruments Incorporated (TXN)
Tyco International Ltd (TYC)
UAL Corp (UAL)
VERITAS Software Corporation (VRTS)
Verizon Communications Inc (VZ)
Wal-Mart Stores Inc (WMT)
Xilinx Inc (XLNX)

 

Narrow Based Indices

Narrow Based Indices are futures contracts on small groups of stocks that allow an investor to take a position in a concentrated area of the equities market. Each narrow-based index will typically include three to nine companies in a specific industry sector.

A OneChicago narrow-based index futures contract is an agreement to deliver shares of the underlying stocks at a designated date in the future, called the expiration date. At all times, four expiration dates will be available for trading OneChicago narrow-based indices. OneChicago narrow-based indices are physically settled at expiration.

Using these indices, investors can take a long or short position in a concentrated basket of stocks without incurring multiple transaction fees.

Margin requirements are generally 20% of the cash value of contract, although this requirement may be lower if the investor also holds certain offsetting positions in cash equities, stock options, or other security futures in the same securities account.

No uptick is required to establish a short position in OneChicago's products. Short sellers may also benefit from eliminating the costs and inefficiencies associated with the stock loan process.

Airlines AMR Corp/Del (AMR) Continental Airlines Inc. CL B (CAL) Delta Air Lines (DAL) Southwest Airlines (LUV) UAL Corp (UAL) Banks Bank One (ONE) SunTrust Banks (STI) Wachovia Corp (WB) Wells Fargo (WFC) Biotech Amgen Inc. (AMGN) Biogen Inc. (BGEN) Chiron Corp (CHIR) Genzyme Corp - Genl Division (GENZ) Human Genome Sciences (HGSI) Computers Apple Computer Inc. (AAPL) Dell Computer Corporation (DELL) International Business Machines (IBM) Research in Motion (RIMM) Sun Microsystems (SUNW) Defense General Dynamics (GD) Lockheed Martin (LMT) Northrop Grumman Corp (NOC) Raytheon Co (RTN) Drugs Abbott Laboratories (ABT) Bristol-Myers Squibb Co (BMY) Merck & Co., Inc. (MRK) Pfizer (PFE) Schering-Plough (SGP) Gold Agnico-Eagle Mines (AEM) Barrick Gold (ABX) Newmont Mining Corp Hldg Co (NEM) Placer Dome Inc (PDG) Investment Banking Goldman Sachs Group, Inc. (GS) Lehman Brothers Holdings (LEH) Merrill Lynch & Co., Inc. (MER) Morgan Stanley Dean Witter & Co. (MWD)

Networking Adaptec Inc (ADPT) Black Box Corp (BBOX) Cisco Systems, Inc. (CSCO) Emulex Corp (ELX) Juniper Networks (JNPR) Oil Services Baker Hughes Inc. (BHI) BJ Services (BJS) Halliburton Co (HAL) Schlumberger Ltd (SLB) Weatherford International (WFT) Pharmacies Biovail Corp (BVF) Cephalon Inc (CEPH) Elan Corp ADR (ELN) MedImmune Inc (MEDI) Sepracor Inc (SEPR) Retail Autozone Inc. (AZO) Best Buy Company Inc. (BBY) Circuit City Stores (CC) Home Depot Inc. (HD) Wal-Mart Stores Inc (WMT) Semiconductor Circuits Altera Corp (ALTR) Analog Devices (ADI) Integrated Device Technology (IDTI) Linear Technology Corp (LLTC) Maxim Integrated Products (MXIM) Semiconductor Components Broadcom Corp-CL A (BRCM) Intel Corporation (INTC) Micron Technology Inc (MU) Texas Instruments (TXN) Xilinx Inc (XLNX) Software Adobe Systems (ADBE) Electronic Arts (ERTS) Microsoft Corporation (MSFT) PeopleSoft Inc (PSFT) Siebel Systems, Inc. (SEBL

Customers wishing to trade Narrow Based Indexes and Single Stock Futures Products, should contact ExpressFutures.com, 1-888-769-9499 to obtain a copy of the required Security Futures Product’s Risk Disclosure Statement. You may also down load the required risk disclosure statement from http://www.nfa.futures.org/compliance/sfp_disclosure.pdf. Narrow Based Indexes and Security Futures Products are not suitable for all investors. The risk of loss associated with these products can be substantial.

11/18/2002 - 2002CINV01352