Single Stock Futures - Frequently Asked Questions

Are Single Stock Futures better than trading equity options?
Single-stock futures are more straightforward than equity options, where you have to decide which strike price to trade within each contract month, a decision that may involve an analysis of time premium. With futures, it's an easy decision: Do you believe the price of the underlying stock is going to higher or lower than the current price indicated by a certain futures contract when that contract expires? Buy futures if you think the price will be higher. Sell futures if you think the price will be lower. It’s that simple!

How big are Single Stock Futures contracts?
Each futures contract represents 100 shares of underlying stock. That is the contract size used at LIFFE and by the Chicago Board Options Exchange (CBOE) for equity options.

What are the margin requirements for Single Stock Futures?
The initial margin requirements for Single Stock Futures will be 20% of the contract value. If so, margin would be $2,000 for one contract that represents 100 shares of a $100 stock (contract value of $10,000). How is a Single Stock Futures contract different from an equity option contract? When you buy or sell a single-stock futures contract, you are obligated to fulfill the terms of the contract upon its expiration (unless you offset the position before then). When you buy an equity option contract, you have the right, but not the obligation, to either buy or sell 100 shares of the underlying stock at the option's strike price by the time the contract expires. When you sell an equity option contract, you are obligated to either buy or sell 100 shares of the underlying stock at the option's strike price at contract expiration.

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