Stock index futures (CME® S&P 500® futures)

Résumé du document

Stock index futures - The first stock index contracts were traded at the Kansas City Board of Trade on February 24, 1982. This introduction was followed (the same year in April) by the Chicago Mercantile Exchange (CME). These new contracts were based on the S&P 500 index. These two brand new contracts turned out to be very successful and was appreciated by most institutional investors. Since then, most of the financial markets all around the world offer futures on their indexes.

Definition of a stock index - "An indicator used to measure and report value changes in a selected group of stocks. How a particular stock index tracks the market depends on its composition the sampling of stocks, the weighting of individual stocks, and the method of averaging used to establish an index."

Extraits

[...] The reasons of the successfulness of the Stock Index Future I. Flexibility Stock index futures add flexibility to the portfolio. As saying above, futures are available on a wide variety of leading stock indexes such as the S&P 500® or DJIA. In fact wherever there is a stock index exposure, there are futures contracts. Moreover, the main markets offer to their customer different contracts size (e-mini because margins can sometimes appear too high for some investors mini contracts have been created to fit a new demand. [...]

[...] A futures contract based on the S&P 500 may not be suitable for your hedging. On the following graph and table, you can see how our portfolio is composed and diversified: Then, in order to cover our portfolio, we decided to hedge to cover its risk. In fact, thanks to technical analyses, we identified that in a future time, the market price of our portfolio may decrease between and 10%. It explained by the fact the US Government may insert a new law for the companies which might oblige them to declare all their expenditures. [...]

[...] We don't really have the deadline for that investment but we know that the firm could need it in a short time. For our example, you will consider that the time frame is the end of December. It will fit perfectly with the contract time. As well, on the 27th of April, we created a portfolio composed of stocks coming from the S&P 500. This choice had been taken because there are some products on the S&P 500 which are able to cover the market risk. We bought 10 stocks from 10 different sectors in order to diversify our risk. [...]

[...] Bibliography Books John C. [...]

[...] For example, if the S&P 500 futures price was at the value of the contract is $325,000 ($250 x 1300, 00). In our case, we considered that the beta of our share assortment is 1.0 to simplify the way. We had a portfolio with a net value of: $ the 27th of April. We had two choices; we can take one or two contracts. On the one hand, we took a higher risk because if our forecasts happen, we won't neutralize our entire portfolio. [...]