Managed Futures

S&P Futures are financial futures which allow an investor to hedge with or speculate on the future value of various components of the S&P 500 Index market index. The futures instruments are derived from the S&P 500 Index is E-mini S&P Futures. S&P 500 futures contracts were first introduced by the CME in 1982. The CME added the e-mini option in 1997. The bundle of stocks in the S&P 500 is, per the name, composed of stocks of 500 large companies.

Derived Futures

All of the S&P derived future contracts are a product of the Chicago Mercantile Exchange (CME).[1] They expire quarterly (March, June, September, and December), and are traded on the CME Globex exchange nearly 24 hours a day, from Sunday afternoon to Friday afternoon.[1]

  • S&P 500 Futures (ticker: SP) contract’s minimum tick is 0.25 index points = $62.50[1] While the performance bond requirements vary from broker to broker, the CME requires $21,000 to maintain the position.[2]

Contracts

S&P Futures contracts are commonly used for hedge or speculative financial goals. S&P Futures contracts are used to hedge, or offset investment risk by commodity owners (i.e., farmers), or portfolios with undesirable risk exposure offset by the futures position.[3]

Quotes

CME Group provides live feeds for S&P Futures and these are published on various websites like Bloomberg.com,[4] Money.CNN.com,[5] SPFutures.org.[6]

Trading Leverage

S&P Futures trade with a multiplier that inflates the value of the contract to add leverage to the trade. The multiplier for the S&P 500 is 250, essentially meaning that S&P Futures are working on 250-1 leverage, or 25,000%. If the S&P Futures are trading at 2,000, a single futures contract would have a market value of $500,000. For every 1 point the S&P 500 Index fluctuates, the S&P Futures contract will increase or decrease $250. The result is that a trader who believed the market would rally huge could simply acquire S&P Futures and make a huge amount of profit as a result of the leverage factor; if the market were to return to 2,100, for instance, from the current 2,000, each S&P Futures contract would gain $25,000 in value (100 point rise x 250 leverage factor = $25,000).

US Tax Advantages

In the United States broad-based index futures receive special tax treatment under the IRS 60/40 rule.[7] Stocks held longer than one year qualify for favorable capital gains tax treatment, while stocks held one year or less are taxed at ordinary income.[8] However, proceeds from index futures contracts traded in the short term are taxed 60 percent at the favorable capital gains rate, and only 40 percent as ordinary income.[9] Also, losses on NASDAQ futures can be carried back up to 3 years, and tax reporting is significantly simpler, as they qualify as Section 1256 Contracts.

 

https://en.wikipedia.org/wiki/S%26P_futures

Related posts