Single Stock Futures Update
God I was at a conference on single stock futures (hosted by the Futures
Industry Association) on Thursday last week. The conference was fabulous and
better yet, it kept me away from the horror show that this market has become.
The FIA Conference on Single Stock Futures
In case you have been too overwhelmed by these tumultuous weeks of
trading to pay attention, several major market centers have been busy filing
rules and regulations for Single Stock Futures
Contracts (SSFs). These derivatives will be, as their names imply,
futures on stocks such as Microsoft, IBM, Oracle, etc. But donâ€™t kid yourself.
The differences between trading stocks and trading these hybrids will be
First of all, there isnâ€™t an up-tick rule for futures, meaning a short seller
can enter at any time, even in a falling market, without having to wait for the
contract to up-tick as a short seller in the underlying stock must do.
Second, the minimum margin on SSFs will be 20%, less than half the margin
necessary to have on deposit to buy the underlying stock (maximum margin for
equities is 50%).
Third, since futures, like options, are created at the whim of the buyer, there
isnâ€™t a concern about the “borrow ability." As many of you have
doubtlessly experienced, stocks such as Krispy Kreme
that have limited floats, meaning they are virtually impossible to borrow, are very difficult to play the downside. Donâ€™t get me wrong, a stock thatâ€™s
hard to borrow will create some tough demands on the single stock future for
that stock as well, but once you establish a short position, you wonâ€™t be
forced out like you could be if you were short the underlying stock.
Tomorrow I will fill you in on the conference itself and what to expect from
Good luck trading today!