Stocks & Commodities V. 22:10 (16-20): Maximizing The Mini by Mike Paulenoff

Stocks & Commodities V. 22:10 (16-20): Maximizing The Mini by Mike Paulenoff

Here’s a look at a successful short-term trade on the e-mini contract.

One morning in June, with the Standard & Poor’s 500 riding a nearly four week uptrend, a friend of mine decided to bet the market would decline. Rather than short the cash index through funds or exchangetraded funds (ETFs) that track the S&P 500, Tom decided to trade the index futures, where he has far more margin power and where nearly round-the-clock trading enables him to buy before the cash market opens. His early morning price on the S&P futures was 1143 or, as it turned out, 41/2 points higher than the S&P 500’s opening price.

Rather than the regular S&P index futures contract, Tom bought the e-mini S&P contract, which is one-fifth the contract size and requires far less money down on margin. A single regular S&P contract, which is valued at $250 per point (or about $275,000 on a price of 1,100), requires about $20,000 in margin ($5,000 if you’re not holding overnight). An e-mini contract, valued at $50 per point, requires about $4,000 if held overnight, and far less if daytrading. You can daytrade up to 49 e-mini contracts for $500 on Global Futures Exchange, though the added leverage, of course, increases risk.

Now, Tom decided to short 10 June e-mini S&P contracts, and at the same time entered an intraday protective stop on his e-mini position to limit his loss in case his analysis and entry proved ill-timed. By evening, with the June e-mini S&P contract down to 1128.50 (nearly 3 points below the cash index’s close), Tom was able to cover his short at more than 14 points. That’s 14 times $50 per point times 10 contracts … or $7,000. Nice bit of change.