Futures Basics What are the Differences? Futures Regulation Who Trades Futures? Futures Exchange Information Futures as a Trading Tool Futures Trading Example Futures vs Equity Options When is Maturity? Helpful Links

Security Futures is the term used to collectively describe futures on individual stocks and futures on narrow-based indices. A security futures contract is a legally binding agreement between two parties to purchase or sell in the future a specific quantity of shares of a single stock equity, ETF, or narrow-based index, at a specific price.

Single Stock Futures are futures contracts on an eligible underlying equity interest. A single stock futures contract is an agreement for delivery of shares of a specific equity interest at a designated date in the future, called the maturity date. The size of a single stock futures contract typically is 100 shares of the underlying equity interest.

Narrow-based Index Futures are futures contracts on small groups of stocks that allow an investor to take a position in a concentrated area of the equities market. Each narrow-based index will typically include five to nine companies in a specific sector.

Currency Futures (information still to come)

Both products are based on publicly traded equity interests ("shares"), but each product has a different set of costs and benefits.

Options:
The holder acquires the right, but not the obligation, to purchase shares of the underlying equity interest at a certain price (Exercise Price) prior to the expiration date. Options purchasers pay a non-refundable price or premium to the seller for the right to purchase shares at a later date. Long or short positions may be closed out prior to expiration date with an offsetting buy or sell trade. Holders wishing to exercise an option must do so on or by its expiration date depending on style. The price of an option includes such factors as volatility and time decay.

Futures:
A stock futures contract is an agreement to buy or sell (receive or deliver) shares of the underlying equity interest at a specified date in the future at an agreed upon price. Long and short positions created through buying and selling futures are marked to market daily allowing daily gains or losses in the stock futures to be passed through to the futures owners. The long or short position may be closed out prior to maturity with an offsetting sell or buy trade. If not, at maturity the futures buyer (long position) will pay the current value of the shares and receive the underlying interest. The accumulation of the daily gains and losses in combination with final stock settlement effectively locks in the total value the futures buyer pays for the shares at the original agreed upon price (exclusive of commissions, taxes, etc).

Both products may undergo adjustment due to corporate action. Please consult your Securities or Commodities broker for complete details or call 1-888-OPTIONS for information.

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Security futures in the United States were made possible by the Commodity Futures Modernization Act (CFMA), signed into law on December 21, 2000. The act lifted a 19-year ban on single stock futures and also allowed futures trading on narrow-based stock indices.

The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have joint responsibility for overseeing security futures.

In addition, firms and businesses that conduct business in security futures must comply with the rules of applicable industry self-regulatory organizations. The National Futures Association (NFA) and NASD Regulation, Inc. (NASDR), as well as the securities and futures exchanges, have specific regulatory responsibilities and authority over their members. These organizations are also subject to federal oversight.

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Futures trading in equity interests, narrow-based indices or any other type of futures product may not be appropriate for all investors. An appropriate suitability test should be applied. Individuals should not risk any funds that they cannot afford to lose. However, security futures can be useful instruments, and traded on regulated markets. They offer investors the ability to achieve objectives in the areas of hedging, speculation and other more sophisticated trading strategies.

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OneChicago (www.onechicago.com) - A joint venture between the Chicago Board Options Exchange (CBOE), CME Group (CME) and IB Exchange Corporation.

Philadelphia Board of Trade (www.phlx.com/pbot) - Trades cash settling currency futures products

CBOE Futures Exchange (cfe.cboe.com) - Trades cash settling volatility index futures (VIX)

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Security futures can provide the means to:

1. Speculate on anticipated increases or decreases in the price of the underlying equity interest or index.

2. Speculate on a particular equity interest’s performance relative to another equity interest.

3. "Hedge" current holdings of a particular equity interest against the risk of adverse price change.

4. Establish, in advance, a definite purchase price or selling price for an equity interest.

5. Temporarily alter a portfolio’s composition without having to acquire or liquidate shares of stock.

6. Create investments with specific risk and reward characteristics by combining security futures with exchange-traded equity options.

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Here’s how buying and offsetting a position might work with a futures contract on XYZ Co. (XYZ):

You buy a June futures contract on XYZ when it is trading at $100 per share. Assuming the contract represents 100 shares of XYZ stock, you would be in control of $10,000 ($100 x 100 shares) of XYZ stock.

Three weeks later, the price of June XYZ futures has risen to $110 per share, so the value of your contract is $11,000 ($110 x 100 shares). You decide to exit your position by selling one June XYZ futures contract. As a result, your account balance will increase by $1,000, out of which your established commission fee is deducted.

A similar scenario would occur if you decided to hold your long XYZ futures position until the June contract expired (also at $110 per share). This would result in the delivery of 100 shares of XYZ stock to the investor's account.

If the price of June XYZ futures declined to $90 per share before you offset your long position at $100, the contract value would be $9,000 ($90 x 100 shares), and your account balance would decline by $1,000.

To view the OneChicago futures expiration calendar, please follow the link below:

OneChicago Trading Hours and Calendar

OneChicago (Joint venture of CBOE, CME and IB Exchange Corp)

PBOT (Philadelphia Board of Trade) - Currency Futures only

CFE (CBOE Futures Exchange)