Single stock futures behavior towards expiration

Discussion in 'Financial Futures' started by newguy05, Aug 27, 2008.

  1. Hi, does anyone know or have a link that explains the SSF behavior towards its expiration. Does it always converge to the theoretical price as stated by the formula: S-PV(Div)*(1+r)^t

    For example, stock is at 55, DEC SSF trading at 50. On expiration, stock trades at 70, what will the SSF price be. Is it always 70 * (1+r)

    couldnt find much info on the net, looks like SSF is a relatively new product, thanks!
  2. At expiration of the SSF the position turns into an underlying stock postion. Accordingly at that time the SSF and the underlying price are the same as there is no longer an interest component to be earned (or paid).

    What is of some interest is that while 95% of futures are offset prior to taking delivery at expiration more than 95% of SSF actually go to delivery! They are in fact a forward synthetic stock position and are looked at just like that. ie. Stock. Interestingly the last 3 months open interest in the expiring contracts actually increased on expiration day which goes against the normal pattern for other future products.

  3. HA! direct from the source.

    So theoretically assume dividend is not in play, you can lock in an arb (at expiration) using efp if the ssf < underlying price ?

    Very good info, thank you.
  4. At expiration the two positions will be equal. If you can purchase the SSF at a price less than where you can short the stock (be sure to factor in costs of money and any rebates..positive or negative) then at expiration the combined position will flatten as the long SSF and the short stock offset each other.

    You can either leg into the trade or put the position on via the EFP which is more efficient as there is no market risk in putting on the trade.