It seems to me that if these single stock futures are all they are cracked up to be ( probably a 50/50 proposition at this point ) they will pose a viable alternative to trading stocks on margin. Also the SSF's can be traded and held in regular brokerage accounts that every daytrader already has. What will the prop firms do in response to this ? Adopt them ?
Don't worry. The prop firms aren't quaking in their boots worrying about a product that won't have much liquidity.
I have already been working on strategies to make money on SSF's, I think the real money is going to be made by being able to play the price inefficiencies between the underlying stock and the SSF. Just playing the SSF alone doesn't make much sense. The bid/ask spread will most likely be wider than the stock spread, I see them as more of a hedging tool such as options rather than capturing a majority of the liquidity or volume. I think for buy and hold investors that want more leverage for their portfolio and cannot calculate the extra money they are paying buying into a wider spread, SSF's will be a wonderful tool. I am a trader, and my focus will be in working in and out of the differences between the prices, buying the stock and shorting the SSF and vice versa. For this I will need even more leverage because of the stock portion of the trade, and can only do it professionally. I would imagine that retail guys may get pissed when they are long 2000 IBM SSF's and the SSF bid drops to 20-cents below the market, but they can't sell stock against it even though NYSE or ARCA may have a much higher bid because they are out of leverage. Those are the times they will be selling to me. I am waiting patiently for those to start, should be fun. -Jim
I think that the 'spread' will get arbed-out pretty quickly by all the investment banking derivative desks . . . As far as the popularity goes, I think that it is all going to come down to commissions. With 20% margins, there will certainly be some interest by the retail trader. But for the more aggressive pro-trader, we are going to have to wait and see what kind of commissions the B/D's and clearing firms are going to be charging. Stay tuned. It should be fun for awhile.
I think this will suck in some options buyers, possibly myself included. If you think about it, it makes more sense to buy an SSF (representing 100 shares, the same as a single call option contract ) from the point of view of a speculative buyer. Also I doubt the spreads will be that bad, except perhaps in the first few months.