Single stock futures -- do they trade?
- Thread starter ajensen
- Start date
If I recall, SSFs were tried years ago but never attracted much following. Don't know if they exist at all these days.
Single Stock Futures still exist at OneChicago. https://www.onechicago.com/ Nothing appears to trade, however. https://www.onechicago.com/?page_id=22379
Don't know if this is true as I have never looked into it myself, but the theory is that SSFs have the cost of carry built into the spread. If so then you would expect SSFs to have very little "trading" activity as crossing the spread is prohibitively expensive. Instead of crossing the spread to exit, wait for expiration, and it might end up being a better deal than a month of your broker's margin interest or borrow fees. Makes them mostly useless for daytraders but possibly useful for investing. At least that's how I understand the theory.
EDIT: contrary to some other posts, there is clearly some trading visible on onechicago.com . very small yes, but I don't think volume is necessarily the whole story here.
EDIT: contrary to some other posts, there is clearly some trading visible on onechicago.com . very small yes, but I don't think volume is necessarily the whole story here.
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Hello,
Rumors of the death of SSF are exaggerated.
https://ftp.onechicago.com/market_data/trade_history/
The above link is updated intraday at 15 minute intervals. It shows exchange activity and if you are a trader looking for buy/sell opportunities OneChicago is not the place. I have actually put throttles on the gateways to prevent HFT shops from even being interested. Trading is not the game I have an interest in - crazy as it sounds.
SSF is for investors - not traders - who enter into positions and carry them for long periods of time. As such they are interested in the cost of carrying those position and the good traders look to minimize those carry costs which increases yields of winners and buffers losses.
SSF are very useful for investors who utilize margin loan. Let's look at the economics of buying on margin in a Reg T account. Customer A wants to buy $1 million notional value of XYZ. Cust A can borrow $500k (50%) from his brokerage for a great blended rate of 3.45% and will have to use 500k of his/her own funds which are currently earning 1.8% in their brokerage account to finance the other 50%. Since they are not going to earn that rate it must be used along side the cost to borrow from the broker to calculate the total cost of carry of the position.
Here is what it looks like:
NotVal Int Rate Int expense
Lend yourself: 500000 0.018 9000
Blended borrow 100000 0.039 3900
Blended borrow 400000 0.034 13600
Totals 1000000 26500 or a blended rate of 0.0265 (2.65%)
NotVal Int Rate Int expense
20% Performance: 200000 0 0
Monies earning Int 300000 0.018 +5400
Not Val of SSF 1000000 0.03 30000
Interest earned reduces expense: 24600= blended rate of 0.0246(2.46)
So if you can carry the SSF at a 3% rate and earn 1.8% on 300K in cash (20% of which goes to the performance bond) your net carry is 19 BasisPoints lower. For some that is the spread that means something.
In the link above you will find our trade data. The most useful dates are during Roll week which for March 2019 was between Mar 11 and Mar 15. Focus on those. In the spread sheets you want to sort the data by column C and isolate Spreads (SS). These are the purest view of finance rates per security as we force them to be competitively traded and you will notice that many of the trades go up at one price in one transaction. If you multiply column H and Column M and then by the multiplier of 100 you will see the notional value of the transactions. How much more liquidity do you need?
Now sort the SS by Column J and you will note the interest rate em-bedded in the spreads.
They don't all trade the same interest rate. Why don't margin loans vary by security as well? Some of the SSF spreads are trading at much lower rates than the 3% I used in my example which will cause the BasisPoints spreads to widen in your favor.
Lastly, notice that the big trades are done in the first 3 or 4 days of the spread week. Be sure to compare the rates that occur on expiration day as small investors look to roll their positions forward. They would do themselves a favor to interact with the markets when the liquidity providers are paying attention.
Sorry for any typos, I'm in the middle of a number of mini-storms. Let me know if I can clear up anything confusing.
Best
David
Rumors of the death of SSF are exaggerated.
https://ftp.onechicago.com/market_data/trade_history/
The above link is updated intraday at 15 minute intervals. It shows exchange activity and if you are a trader looking for buy/sell opportunities OneChicago is not the place. I have actually put throttles on the gateways to prevent HFT shops from even being interested. Trading is not the game I have an interest in - crazy as it sounds.
SSF is for investors - not traders - who enter into positions and carry them for long periods of time. As such they are interested in the cost of carrying those position and the good traders look to minimize those carry costs which increases yields of winners and buffers losses.
SSF are very useful for investors who utilize margin loan. Let's look at the economics of buying on margin in a Reg T account. Customer A wants to buy $1 million notional value of XYZ. Cust A can borrow $500k (50%) from his brokerage for a great blended rate of 3.45% and will have to use 500k of his/her own funds which are currently earning 1.8% in their brokerage account to finance the other 50%. Since they are not going to earn that rate it must be used along side the cost to borrow from the broker to calculate the total cost of carry of the position.
Here is what it looks like:
NotVal Int Rate Int expense
Lend yourself: 500000 0.018 9000
Blended borrow 100000 0.039 3900
Blended borrow 400000 0.034 13600
Totals 1000000 26500 or a blended rate of 0.0265 (2.65%)
NotVal Int Rate Int expense
20% Performance: 200000 0 0
Monies earning Int 300000 0.018 +5400
Not Val of SSF 1000000 0.03 30000
Interest earned reduces expense: 24600= blended rate of 0.0246(2.46)
So if you can carry the SSF at a 3% rate and earn 1.8% on 300K in cash (20% of which goes to the performance bond) your net carry is 19 BasisPoints lower. For some that is the spread that means something.
In the link above you will find our trade data. The most useful dates are during Roll week which for March 2019 was between Mar 11 and Mar 15. Focus on those. In the spread sheets you want to sort the data by column C and isolate Spreads (SS). These are the purest view of finance rates per security as we force them to be competitively traded and you will notice that many of the trades go up at one price in one transaction. If you multiply column H and Column M and then by the multiplier of 100 you will see the notional value of the transactions. How much more liquidity do you need?
Now sort the SS by Column J and you will note the interest rate em-bedded in the spreads.
They don't all trade the same interest rate. Why don't margin loans vary by security as well? Some of the SSF spreads are trading at much lower rates than the 3% I used in my example which will cause the BasisPoints spreads to widen in your favor.
Lastly, notice that the big trades are done in the first 3 or 4 days of the spread week. Be sure to compare the rates that occur on expiration day as small investors look to roll their positions forward. They would do themselves a favor to interact with the markets when the liquidity providers are paying attention.
Sorry for any typos, I'm in the middle of a number of mini-storms. Let me know if I can clear up anything confusing.
Best
David
It seems kind of crazy to use a product that you can only realistically trade a few days during the month in order to get what, 19 basis points? I mean you could do this for years and have to exit once between roll periods and the spread would wipe out the last 5 years and the next 5 years of 19 basis points. I don't envy you, trying to sell a lack of liquidity as a benefit is right up there with selling a glass of water to a drowning man, but you gotta come up with something better than 19 basis points given the risk adjusted return you end up with to get those 19 basis points!
I do appreciate your concern but you seem to be missing something. If one party is paying 3bps then another party is earning them. For customers who are getting 1.8% for idle cash the extra 120 bps would indeed seem attractive.
For those with HTB names in their cash accounts they could be replacing those positions with identical risk positions that are trading at substantial discounts.
It is not for everyone but for those that have cash and appreciated stocks that are in demand it is a no-brainer.
For those with HTB names in their cash accounts they could be replacing those positions with identical risk positions that are trading at substantial discounts.
It is not for everyone but for those that have cash and appreciated stocks that are in demand it is a no-brainer.