smartest-data blog

Stock Index Futures are based on Equity Indexes and are Exchange traded. A Buyer and Seller for each, a Ticker Code, a contract size, minimum tick fluctuation and a value of one tick. Index Futures can be used to either hedge risk or gain market exposure.

Index Stock Futures are Exchange Traded Contracts that are based on a specific Stock Index. The Futures Exchange, the CME in Chicago, takes on the counterparty risk. Before Futures trading can commence an Initial Margin and a Maintenance Margin will be calculated and the Trader must fund the Margin Account. A Trader in Futures could be doing so for one of two objectives. Either to manage Equity Market risk, thus shorting Futures, or taking an Index Long position in Futures to gain market exposure. While Index Stock Futures vary depending on the underlying Index, as they are, Exchange Traded contracts are standardised in terms of contract size and expiration. The contracts are cash settled on a daily basis and most have quarterly expiration dates for March, June, September and December.

As Futures Contracts are Exchange Traded, they have a Ticker Code and they are standardised contracts to facilitate trading. An example of a Code for a Futures Contract, the CME trades the E-Mini S&P 500 Contract.

If the Code is ESU22, this signifies the E-mini S&P 500, September 2022 Contract. If you wanted to trade the December 2022 Contract, the Futures Code would be ESZ22.
The Contract – EN = E-mini S&P 500
The Month – U = September, December = Z
The Year – 22 = 2022

Each Futures Contract will have standard conditions, including contract size, minimum tick fluctuation and the dollar value of one tick. Then comparing two Index Futures Contract the Micro E-mini S&P 500 and the Micro E-mini NASDAQ 100. Let’s take a look.
Contract Size $5 x S&P 500 Index $2 x Nasdaq-100 Index
Minimum Tick Outright 0.25 Index points Outright 0.25 Index points
Value of one Tick $1.25 per contract $0.50 per contact
CODE Sep 2022 MESU22 MNQU22

For each Futures Contract there is a Buyer and a Seller. As mentioned, there are two main objectives, in using Futures Contracts to manage Equity Market risk, thus selling or shorting Futures or taking an Index Long position in Futures to gain market exposure.
A quick example of hedging risk a portfolio of U.S. Stocks, portfolio value $2.5 million. The investor has continued concerns over the level of inflation, Interest Rates continuing to rise and the risk of a possible recession. The S&P500 is currently at 3,825. The investor will use the Micro E-mini S&P500, using the September Futures Contract. Thus the Ticker is MESU22. First, the Hedge Ratio needs to be calculated. Simply put, the Hedge Ratio is the number of MESU22 contracts that need to be sold.

Hedge Ratio = Portfolio Value / Notional Value = Number of Contracts
Hedge Ratio = 2,500,000 / (5 X 3,825 = 19,125) = 131 Contracts to be sold.
The S&P500 falls by a further 10% reaching 3,442 and the investor decides to close the position by Buying the 131 MESU22 contracts. Therefore, the profit would be.
3,825 – 3,442 = 383 Index Points and each index point = $5
Per contract, 383 x $5 = $1,915 then multiplied by the 131 contracts covered or bought, the Profit = 131 x $1,915 = $250,865.


Leave a Reply

Your email address will not be published. Required fields are marked *

Warren William

Meet the author behind Smartest-Data. Warren William has a career in Finance and Investments extending over 35 years, both on the Buy Side and Sell Side. His most recent roles include, developing Institutional Risk Management Programs for managing Equity and Fixed Income Risk.  Prior to this Warren William work in Alternative Investments, in Investment Management and as a Buy Side Equity Analyst. Warren William brings a wealth of knowledge and expertise to the table, providing in-depth analysis and commentary on the latest trends in the Stock Markets. Contact information: or Telegram +393339034488

Welcome to

Smartest Data aims to be your go-to source for analysis and commentary on Investments, Personal Finance and the Global Stock Markets. The aim is to provide our readers with insightful and actionable information for independent minded Investors.  Dissecting  the daily avalanche of Data produced by the Stocks Market by using data Websites  and Apps available to people at home. Join us, to be Driven by Data to navigate the Investment universe markets and make better informed investment decisions.