1 / 38

Introduction to Single Stock Futures Educational Seminar 101

Introduction to Single Stock Futures Educational Seminar 101. Magnus de Wet , James Boardman, Rudolf Oosthuizen 09 March 2011. Agenda. Introduction to Derivatives Futures Theory Risk Management for the exchange Risk Management for you Cash flows of a future

candie
Télécharger la présentation

Introduction to Single Stock Futures Educational Seminar 101

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Introduction to Single Stock Futures Educational Seminar 101 Magnus de Wet , James Boardman, Rudolf Oosthuizen 09 March 2011

  2. Agenda • Introduction to Derivatives • Futures Theory • Risk Management for the exchange • Risk Management for you • Cash flows of a future • Interest and the time value of money • How to trade- Speculate, Hedge or Arbitrage • Costs associated with trading • Single Stock Futures compared to CFDs • Questions & Contact Details

  3. SSF: Introduction • JSE Futures are based on following underlying assets: • Equities • Commodities • Currency • Bonds • International Blue Chip Companies (IDX) • This presentation focuses on Single Stock Futures but the concept is the same on any of the underlying assets traded on the JSE which are listed above.

  4. SSF: Futures Explained • An agreement between two parties to buy/sell an equity/share at a certain time in the future for a predetermined price • In reality futures contracts can be seen as loan agreements where a financial institution lends you the money to buy a share today but only sells it to you on a future date. • Misconception: Investor does not guess price. Investor guesses direction of the share or underlying asset • Futures Price: Current Price plus Interest. Dividends play role but not covered in this presentation

  5. SSF: Futures Terminology • As with share trading, you need a buyer and seller before a trade can occur. Buy = Long Think the share price is going up Short = Sell Think the share price is going down

  6. SSF: Futures Terminology • Variation Margining (Zero Sum Game – For every winner there’s a loser) • Removes big surprises at end of contract • Limits risk of default • Risk mitigated by way of Initial Margin: • Covers exchange against default • Worst possible loss in 1 days movement • Returned with interest • Approximately 10% - 20% of underlying exposure • Gearing • Exchange standardise agreements/contracts • Contract sizes (nominal) standardised • Contracts expire every 3rd Thursday of March, June, September and December

  7. Risk Management Stucture • The Risk Management philosophy when trading Safex Derivatives is very simple - "You stand good for your client".

  8. SSF: Futures Example – Share Price increase • Physically settled Futures – On Futures Close Out (FCO) the buyer will buy the physical share from the seller at the closeout price (R120), reporting it to TradElect with trade type OX. • Adding the R10 profit made he only paid R110 for the share as originally agreed

  9. SSF: Futures Example – Share Price decrease • Physically settled Futures – On FCO the buyer will buy the physical share from the seller at the closeout price (R80), reporting it to TradElect with trade type OX. • Adding the R30 loss made he paid R110 for the share as originally agreed

  10. Introduction to interest +(50% or 0.50) + =

  11. Introduction to interest R100*50% = R50 R100*(1.50) = R100*(1+50%) = R150 R150*(1+50%) = R225 (R100*(1+50%)) *(1+50%) = R225 R100*(1+50%)^2 = R225

  12. Introduction to interest R150*(1+50%) = R225 (R100*(1+50%)) *(1+50%) = R225 ((R100*(1+50%)) *(1+50%)) *(1+50%)= R337.50 R100*(1+50%)^3 = R337.50

  13. Introduction to interest R100*(1+50%)^3 = R337.50 • Compounding returns • What is Prime? 9% • Compounding Monthly ? = • 9%/12 = 0.75% per Month R100*(1+R)^t = ? R100*(1+9%)^12 = ? R 281.27 ? =R100*(1+0.75%)^12

  14. Compounding S

  15. Credit Risk Prime = 9% 3.5% Repo = 6.5%

  16. Interest formulas • Formula for Interest = • Can work out returns • R100 capital turns into R105.11 in 6 months 1 (T*N) ( ) ) ( ) ( R CV 1 = FV * N

  17. Deriving future prices 2 Mar 2011

  18. Deriving future prices 16 Jun 2011

  19. Spread Cost • Offer – Bid = Spread • Spot Spread = R367.00 – R366.50 = R0.50 • Cost of getting in and out • In percentage of exposure = • (Offer – Bid)/((Bid + Offer)/2) = Spread% • R0.50/((R367.00+R366.50)/2) = 0.14%

  20. Spread Cost • Future Spread = R371.31 – R372.99 = R1.68 • In percentage of exposure = • R1.68 /((R371.31+R372.99 )/2) = 0.45%

  21. Deriving future prices 16 Jun 2011 1 Market maker

  22. Deriving future prices

  23. Deriving future prices 17 Mar 2011 10 Market maker

  24. Market maker Double R1.5 R1.5 R1 R99 R100 R101

  25. SSF: When do you use Futures? • Hedging / Risk Mitigation • Own something (shares, agricultural commodities, interest rate instruments, currency) and want to limit your risk • Planning something (project, holiday) in the future • Speculating • Think the price is going up • Think the price is going down • Arbitraging • locking in a riskless profit by simultaneously entering into two or more transactions. • Difference in spot and future price • Difference between expiries

  26. SSF: SSFs vs. CFDs • SSFs • Exchanged traded product • Expiry Date • Interest agreed upfront • Regulated by the JSE and FSB • Guaranteed by SAFCOM • Fungible financial instrument • Free markets • CFDs • Trades OTC • No Expiry Date • Interest fluctuates daily • Unregulated • Not guaranteed by SAFCOM • Not fungible • Captive markets • CFDs are not JSE products and are therefore not traded, regulated or guaranteed by the JSE.

  27. SSF: Benefits and Risks associated with Futures • Benefits • Regulated by JSE and FSB • Guaranteed by SAFCOM • Opportunity to protect/hedge your share portfolio by trading SSFs in the same underlying share. • SSFs incur lower brokerage costs than actually trading in the underlying shares. • Your initial margin earns interest for the duration of your contract. • SSFs are characteristically liquid and easily traded. • Gearing – significant returns… • JSE independently calculates and values positions • Wholesale Interest Rates • Risks • Gearing – significant losses…

  28. So what have you learnt? • Derivatives are risk management tools • Futures are essentially loans • The time value of money • How futures daily cash flows work • The risk management hierarchy of the exchange • The risks and rewards of gearing • The benefits of on exchange trading • The economics of information asymmetry • Futures can be very useful trading tools and a tremendous amount of fun!

  29. To the Future Chef’s and Rally Drivers of derivatives trading • Trading is hard work there is no free lunch • Trading successfully is a skilled profession. You don’t expect to become a rally driver or a gourmet chef immediately. • It takes dedication, discipline and planning to succeed • Good luck with your trading! • There will be further presentations on topics in derivatives throughout the year • Go to http://www.jse.co.za/seminars to register

  30. SSF: Future Educational Seminars • 9 March 2011 – Single Stock Futures 101 • 10 March 2011 – Single Stock Futures 201 • 11 April 2011 – Commodity Futures • 24 May 2011 – Currency Futures and Options • 21 June 2011 – Introduction to Safex Style Options • 19 July 2011 – Safex Style Options in Depth • 23 August 2011 – Broker Showcase • 20 September 2011 – Inside Options Guest Speaker • 25 October 2011 – Dividend Neutral Futures • 23 November 2011 – International Derivatives (IDX) • 06 December – Single Stock Futures 101 • 07 December – Single Stock Futures 201

  31. SSF: Useful websites/tools • Equity Derivatives Market: • www.safex.co.za/ed • Equity Derivatives Products: • www.safex.co.za/equityindexfutures • www.safex.co.za/options • www.safex.co.za/idx • www.safex.co.za/ssf • www.safex.co.za/cando • www.safex.co.za/dividendfutures • Equity Derivatives calculators: • www.safex.co.za/margincalculator • www.safex.co.za/bookingfeescalculator • Equity Derivatives Data Files: • www.safex.co.za/contractdata • www.safex.co.za/mtm • www.safex.co.za/marginrequirements • www.safex.co.za/EDMstats • www.safex.co.za/minimums • Members • www.safex.co.za/members

  32. SSF: Questions & Contact Details • Parking tickets! • Magnus de Wet • James Boardman • Rudolf Oosthuizen • DerivativesTrading@JSE.co.za • Options@JSE.co.za • +27 11 520 7051

More Related