Single Stock Futures - Some Questions ...

Discussion in 'Financial Futures' started by pbanerjee, Jun 15, 2010.

  1. Three questions:

    Question # 1:

    Which is better in terms of bid-ask spread?

    (a) buy the SSF directly incurring the full bid-ask spread?
    (b) first buy the ETFs on the spot market and then sell an EFP?

    I want to trade some high yielding ETFs on leverage e.g. say corporate bond ETFs like JNK or the preferred ETFs like PGF/PFF/PGX. My object is two-fold: (a) get free higher leverage (unlike a margin account where one is charged for interest rate) and (b) have a flexibility to use a leverage higher than 2x.

    I can't implement the trade in options as in American options the pricing becomes very wierd around dividend dates and defeats the purpose.

    SSFs seems like the perfect instument, i.e. capture the dividend as a capital gains that is taxed at 60%/40% rule rather than the usual short term income.

    I am not too worried about liquidity at this point. Can some give some suggestions regarding the two alternatives (a) or (b) above.

    Which is advisable?

    Question # 2

    One of the thing that I find very interesting about the SSF is that the trading time of ETF ends at 4:15pm. This way, I can have a quantitative model (e.g. CTA type momentum model) that generates some signals using market close data at 4pm and then I execute it between 4pm and 4:15pm.

    Usually all CTA type momentum models lose 1/2 of their backtest returns because one may have to wait for the next day after the market close to execute the trade. If we can execute close (or as in this case immedidately) after market close then that's a big advance.

    I realize that there is also an after-hours trading in stocks. However, I read somewhere that the EFP process for ETFs can't be done after 4 pm (i.e. between 4 and 4:15 pm). Is this correct?


    Question # 3

    Which brokerage firms offer block trading? Is block trading of SSFs available on IB - and if so, can retail participants do block trading?


    SSFs seems like a great product. Can't understand why the OneChicago exchange doesn't do more proper marketing to institutions?

    What they really need to do is bring out white papers highlighting real cases of whether the losses due to wider bid-ask spreads on SSFs offset the cost of borrowing a stock on margin.

    Instead they seem to be focussing on promoting SSFs on the interest rate arbitrage between SSFs and stocks which most institutions/ hedge funds would not be interested.
  2. Arjun1


    SSF's basically have no volume whatsoever - even for QQQQ. And even for QQQQ futures you have large spreads.

    And I doubt SSF's will ever take off. As far as I know IB is the only broker that offers them and that's only because it owns OneChicago.

    No other broker will ever offer SSF's because if SSF's ever take off it will cut into their lucrative share lending business.

    If SSF's were not subject to the PDT rule and had the tax advantage of futures then I think there may have been some interest.