One of the most successful types of futures contracts of all time is the class of futures on stock indices. Probably the most successful has been the Chicago Mercantile Exchange’s contract on the Standard and Poor’s 500 Stock Index. Called the S&P 500 Stock Index futures, this contract premiered in 1982 and has benefited from the widespread acceptance of the S&P 500 Index as a stock market benchmark. The contract is quoted in terms of a price on the same order of magnitude as the S&P 500 itself. For example, if the S&P 500 Index is at 1183, a two-month futures contract might be quoted at a price of, say, 1187.
The contract implicitly contains a multiplier, which is (appropriately) multiplied by the quoted futures price to produce the actual futures price. The multiplier for the S&P 500 futures is $250. Thus, when you hear of a futures price of 1187, the actual price is 1187($250) = $296,750.
S&P 500 futures expirations are March, June, September, and December and go out about two years, although trading is active only in the nearest two to three expirations. With occasional exceptions, the contracts expire on the Thursday preceding the third Friday of the month. Given the impracticality of delivering a portfolio of the 500 stocks in the index combined according to their relative weights in the index, the contract is structured to provide for cash settlement at expiration.
The S&P 500 is not the only active stock index futures contract. In fact, the Chicago Mercantile Exchange has a smaller version of the S&P 500 contract, called the Mini S&P 500, which has a multiplier of $50 and trades only electronically. Other widely traded contracts in the United States are on the Dow Jones Industrials, the S&P Midcap 400, and the Nasdaq 100. Virtually every developed country has a stock index futures contract based on the leading equities of that country. Well-known stock index futures contracts around the world include the United Kingdom’s FTSE 100 (pronounced “Footsie loo), Japan’s Nikkei 225, France’s CAC 40, and Germany’s DAX 30
STOCK INDEX FUTURES CONTRACTS
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