Single Stock Futures - SSFs - opinions?

D

dougman100

Anyone using single stock futures? If you use them, why do you use them, if you don't, why not? Thanks.
For those not familar with SSFs, www.onechicago.com
They have close to 500 contracts now. Only 20% down.
CME also has contracts for SPY, IWM, and QQQQ.
 
Quote from dougman100:

Anyone using single stock futures? If you use them, why do you use them, if you don't, why not? Thanks.
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My experience thus far is that they don't follow the underlying precisely so they are problematic for short term trading, fills can be a real problem because the volume is often very thin, and there is no guarantee someone is going to take the other side of your trade when you need to exit.

I wish it was otherwise, because the concept is a good one.
 
You mainly use them for the following two scenarios.

When you think a stock has real promise, technically or fundamentally speaking, for the next month or more with a nice move to the upside or downside, SSF's are great because they wont tie up capital or require you to use margin.

REAL world example: A great time to load up on SSF's would have been this past July. Take Apple for example, sitting in the $50 range for over a month. It now trades at $90. Take your pick. There are a boat load of stocks that had these kinds of moves, like RIMM, ICE, GOOG, etc. SSF's would have been huge for any of these equities.

Also if you anticipate something dramatical or sudden happening like an earnings announcement, etc. that will really move the stock, SSF's will work.

Bottom line is, you need legitimate moves in the underlying for you to make any money on SSF's. Forget about scalping and general shorter term trading. The spreads are not ideal and if you have any kind of volume to unload, the liquidity is another potential issue. What will outweigh these logistics and really allow you to maximize the value, is a nice $2, $3, or more move in the underlying stock.
 
I'm not always happy with the spreads. They are typically between .06 and .10 which isn't good for short-term trading. But OK for positions. I think a lot of people get confused on the pricing of futures. A EBAY or MSFT SSF isn't going to be the same price as the stock. The SSF price takes into account the fact that the cash you save by buying the futures contract, is in an interest bearing account. Dividends need to be subtracted from the price. So the price of the SSF "adds on the interest" to the underlying stock price less dividends. And of course that premium wears off over time, just like stock index futures. I think when people see a higher price, that think it's a "bad price", but it's just taking into account interest rates on the money your saving. No free lunch.
 
Quote from DeltaSpread:

You mainly use them for the following two scenarios.

When you think a stock has real promise, technically or fundamentally speaking, for the next month or more with a nice move to the upside or downside, SSF's are great because they wont tie up capital or require you to use margin.

REAL world example: A great time to load up on SSF's would have been this past July. Take Apple for example, sitting in the $50 range for over a month. It now trades at $90. Take your pick. There are a boat load of stocks that had these kinds of moves, like RIMM, ICE, GOOG, etc. SSF's would have been huge for any of these equities.

Also if you anticipate something dramatical or sudden happening like an earnings announcement, etc. that will really move the stock, SSF's will work.

Bottom line is, you need legitimate moves in the underlying for you to make any money on SSF's. Forget about scalping and general shorter term trading. The spreads are not ideal and if you have any kind of volume to unload, the liquidity is another potential issue. What will outweigh these logistics and really allow you to maximize the value, is a nice $2, $3, or more move in the underlying stock.
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Good post! I'd been trying to find a good use for SSFs, and I think you nailed it. There are indeed times when it pays to pick up good buys at major market lows to hold for some time without tying up too much trading capital.
 
SSF's can also be used successfully to trade spreads, for example (like between the computer components of the dow, and the dow itself).

there was a decent article about htis in Active Trader a while ago.

the OP is correct. SSF's would be a terrible idea to intraday trade or scalp. the spread makes that prohibitive.

the volume on these is WAY too low to effectively play market maker to "beat the spread" most times.

they are GREAT for position/swing trading for moves of a few points, and/or for a B&Hold strategy.
 
Quote from DeltaSpread:

You mainly use them for the following two scenarios.

When you think a stock has real promise, technically or fundamentally speaking, for the next month or more with a nice move to the upside or downside, SSF's are great because they wont tie up capital or require you to use margin.

REAL world example: A great time to load up on SSF's would have been this past July. Take Apple for example, sitting in the $50 range for over a month. It now trades at $90. Take your pick. There are a boat load of stocks that had these kinds of moves, like RIMM, ICE, GOOG, etc. SSF's would have been huge for any of these equities.

Also if you anticipate something dramatical or sudden happening like an earnings announcement, etc. that will really move the stock, SSF's will work.

Bottom line is, you need legitimate moves in the underlying for you to make any money on SSF's. Forget about scalping and general shorter term trading. The spreads are not ideal and if you have any kind of volume to unload, the liquidity is another potential issue. What will outweigh these logistics and really allow you to maximize the value, is a nice $2, $3, or more move in the underlying stock.
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Considering the above statement, I hardly see how they out-weigh the use of the indice derivatives or options. All things considered, too much risk for the reward for my liking.

Thanks for the info.

JJ
 
Bottom line: You can use SSFs just like you do a stock position.
The spreads are higher. They are continuously quoted by market makers. The prices are higher vs the underlying stock because you only have to put 20% down. The price takes into account that you invest the other 80% at a LIBOR rate. Same concept is true with the pricing of stock index futures.
 
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