BASIC TECHNIQUES

Better And Better, Little By Little
Better Returns With Single-Stock Futures

by Jeffrey P. Seyler


What exactly are they, and how can we use them to our advantage?

Launched on November 8, 2002, security futures products have been watched by many but traded by few. The reasons for this vary, but lack of volume (and therefore liquidity) seems to be one of them. As with all new products, volume takes time to develop, but these products are becoming more popular little by little, and will continue to increase in volume over time. And in spite of low volume, reports are that the two primary exchanges offering these products (OneChicago and NQLX) have been able to handle both large and small orders with acceptable fill prices quite regularly. Liquidity doesn't seem to be a problem.

SINGLE-STOCK FUTURES EXPLAINED

The term security futures products actually encompasses both single-stock futures and microsector indexes. Currently, about 100 stocks are available as single-stock futures, a handful of exchange-traded funds (ETFs), and 15 microsector indexes. For this article, however, I will restrict the discussion to single-stock futures.

A single-stock futures contract is simply a contract to buy (or sell) 100 shares of a particular stock at some future date. Although many trading strategies are available to take advantage of single-stock futures, I'll demonstrate one way to guarantee a better return using single-stock futures than you would get by buying stocks in the cash market.
 

  ...Continued in the May 2004 issue of Technical Analysis of STOCKS & COMMODITIES


Excerpted from an article originally published in the May 2004 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2004, Technical Analysis, Inc.



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