NQ-ES Shorts Easily Available?

Discussion in 'Index Futures' started by version77, Dec 10, 2001.

  1. I was wondering if you wanted to short NQ or ES if they were
    easily available or do you have to fight with everyone else to
    get ahold of one...
  2. vikana

    vikana Moderator

    Remember that with futures shorting is equal to selling, so as long as there is someone wanting to buy, you can short/sell.

    With the high liquidity in ES and NQ shorting should never be a problem.
  3. Thanks for the answer vikana.

  4. version77

    In futures it is no harder to go short (sell) than to go long (buy). Unlike stocks you do not need to have an uptick to short nor do you "borrow" the stock to go short. You simply sell how many contracts you want to be short. The E-Mini S&P market has been averaging 200,000 contracts a day, making it the highest volume US stock futures.

  5. It seems strange to sell something you don't own or borrow in
    the first place. But obviously once you sell a number of contracts
    whether it be one or ten, it would be a good idea to buy them
    back. Hopefully for a lesser amount then you paid for them.

    I wonder if single stock futures will ever become a high volume
    trading vehicle. Might be a possibility they could take some
    volume from the e-mini's?
  6. jaan


    well, think of it this way: there are always two parties to each futures contract. one agrees to deliver the goods on the expiration date, and the other agrees to pay for the goods on the same date. the latter is the buyer (of the contract) and the former is the seller, and the transaction value marks the agreed price of goods. of course, the "goods" in case of NQ or ES are more abstract than in case of, say, a soybeans contract.

    also note that, contrary to stocks, futures contracts do not have intrinsic value -- the margin you have to deposit is just an insurance for your broker that you can meet your obligation (to sell or buy the goods) at the expiration date.

    at least that's how i have understood it -- i'm not an expert nor do i trade futures myself.

    - jaan
  7. observer


    The e-mini futures contracts do have an intrinsic value. It's the
    value times the multiplier.
    For NQ it is 1660 x $20 = $ 33200.
    For ES it is 1135 x $50 = $ 56750.
    These contracts represent a basket of stocks. The delivery is in cash.

  8. jaan


    sure, but that's not what i meant by "intrinsic value". i mean when you buy a stock in a company, you actually buy real value -- a portion of company's assets and future profits. hence the "intrinsic value" of a stock. whereas, buying a futures contract won't give you such "intrinsic" value for your money -- it's just a contract to buy/sell the goods at the given expiration date.

    i hope i made sense.

    - jaan
  9. jaan -

    The "intrinsic value" of any futures contract is the current spot value of the commodity it's written on - some futures are simply cash settled rather than delivered.

    So if the spot price of gold is $270/oz, the the intrinsic value of a gold contract is $270/oz. If you hold the contract until expiration, you're going to be taking delivery of a pile of gold and having to pay for it. But the contract can also be sold and it's intrinsic value is always the current spot value of gold at that time.

    In the case of index futures, "delivery" is a simple cash settlement on the contract based on the underlying index value at expiration - rather than trying to actually deliver a basket of stock to you.

    Conceptually I suppose they could now maybe deliver 500 shares of SPY for each emini contract, but SPYdrs weren't around when the S&P contract was created and cash settlement is cleaner anyway.

    This is conceptually similar to the intrinsic value of an option. A $10 call option with the underlying stock at $25 has an intrinsic value of $15. The actual value of the premium depends on volatility, time, etc.

    Futures contracts carry a premium too - but it's more straightforward than options and there is no strike price involved - it represents the cost of carrying the underlying commodity for the remainder of the contract life.

    Example - you buy a December S&P futures contract @ 1130. The SPX is trading @ 1128.50 (1128.50 is therefore the current intrinsic value of the contract and you're paying a 1.50 premium over intrinsic value).

    BTW, when you buy a share of stock - you're only conceptually buying an asset - usually you're buying a bet (that someone else will eventually buy it from you at a higher price than you paid). The "intrinsic value" of a stock is its book value (not necessarily the book value shown in stock profiles though - those numbers are very often inflated with worthless "assets" like goodwill - so you'd have to manually compute the net asset value using hard or disposable assets less liabilities to come up with a real book value). Lots of stocks out there with negative book values, so what are you buying when you buy the stock?

    OK, some will argue that you have to factor in cash flow (assuming they have a net positive cashflow) and expected growth (which of course would be nothing more than a pure guess). But those might play a role in trying to come up with a valuation of what is a reasonable premium to pay over the company's intrinsic value, they are not part of the stock's intrinsic value.

    So when you buy JNPR @ 24 when it has a dubious $2.55/share book value (dubious because their balance sheet has a lot of worthless "asset" value on it), revenue of $3/share, and marginal to negligible net income - what's the real "intrinsic value" you're buying for your $24?

    At least with index futures you always know what your real intrinsic contract value is without guessing.

  10. observer



    I wanted to reply the same to Jaan, but because my english isn't to good, i found it difficult to find the proper words.
    Thank you for the explanation.

    #10     Dec 12, 2001