When a FTSE Future expires

[jls483]

As many of you know I am using instruments like spreadbets and futures to gear up more traditional investing.

Without going into exactly how I make my money, my problem can be summarised as finding the best way to hold a FTSE future so that I can sell it when the FTSE rises to 5000.

At the moment I do this using a rolling cash spreadbet. I pay 6% financing charge and get about 4% in dividends so it costs me about 2% a year.

I'm looking at using a future to save another 2%, but as the FTSE might not rise to 5000 for a year (or ten) I'm going to have to move my position each time the future expires.

At the moment the futures are looking like this:

Jun 03 3923/3923.5
Sep 03 3914.5/3916.5
Dec 03 3924.5/3928.5
Mar 04 3915/3920

So here come the questions

1. Anybody already doing this and can pass on any tips?

2. What happens as the future expires? What is the last time that I can deal in the expiring future? At what point does the new future narrow to a half point spread? Is it risky to leave moving the position until the day of expirary?

3. Can anything be said about why some futures are priced higher or lower than the current one? Will they converge uniformly with the current future or does it happen more suddenly?

Many thanks,

John.

 

[JonnyT]

I don't think a 5 point spread for a March 2004 future is relevent given 10 months to expiry and your target of 5000....

JonnyT

 

[FTSEBOY]

When a FTSE future expires

This might help answer one of you points concerned. On the last trading day of the FTSE future (quarterly expiry Mar,Jun,Sep,Dec) the contract ceases trading at 10:30:30 am. Unless the position has been rolled into the next expiry, ALL long and short positions will have an opposite trade trade assigned to it at the final EDSP which stands for the Exhange Delivery Settlement Price. This price is determined based upon the average vallues of the FTSE 100 index every 15 seconds between (and including) 10:10 and 10:30 on the last trading day. Of the measured value, the highest 12 and lowest 12 will be discarded and the remaining 57 will be averaged to calculate the EDSP. Where necessary, the calculation will be rounded to the nearest half index point.
With regards to trading out on the last day you would only have 2 1/2 hours to 'roll' into the next delivery month. With that in mind I don't know what sort of price you would get as a majority of the open interest would be in the next delivery month.
Hope that helped a bit.
FTSEBOY

 

[oatman]

The volume on the previous day tends to be about even. Mostly up until then it's spread volume. I normally move to the next contract then. You can trade right up to the death on expiry day but it can become a bit hairy if option expiry is big.
Suggest you put a spread order in if you don't fancy legging it. Current forward vol is crap. Today's June is currently 40000 and Sep 547.

Good luck

 

[fillyerboots]

You could try Options on the FTSE Future. I'm no expert but you can theoretically buy say a March 04 Call at today's prices 3925 strike. This leaves you with the potential to be long the Future at 3925 until expiry in Mar 04. pricing now would be expensive but eliminates rolls and your maximum downside is your premium that you pay. Don't know how the premium affects where the underlying needs to be before you profit though.

 

[jls483]

oatman - sounds like you've done it before, but I'm afraid I didn't really understand a word of what you were saying.

Could you explain some of the terms you used and maybe give an example of what the numbers might look like.

Many thanks,

fillyerboots - I'm not sure I want to use options. I want to know that every time the FTSE goes up a tick I make a £1 (or £10). I don't want time to expirary to have an afect on the price of the instrument I'm using. If I use a future I get a fixed £10/tick and if the next future is at a discount I could even make a small profit.

John.

 

[CityTrader]

JLS483 - Unless I've missed some hugely significant financial event, I'm really not sure, how under current markets the Mar 04 contract can trade at a backwardation?

 

[jls483]

backwardation?

 

[Helenqu]

Hi J,

Check this out:

http://www.riskglossary.com/articles/backwardation.htm

 

[CityTrader]

Helenqu- hey nice explanation except "contango" is never used for cash markets- whereas backwardation or a "back" is also used in cash equities to describe the event whereby one market makers bid, is higher than another's offer. This is one of the ocassion when the price displayed is NOT binding.

Wayno

 

[oatman]

jls, sorry about that.
There is a spread market in which you could place an order to trade at a fixed differential. This means you sell June buy Sep at the same moment. Your trade is at the differential, so not affected by price movement.
The alternative is to, for instance, sell your June then buy your Sep. This would be "lifting a leg". The danger being that you're exposed(while your "leg" is up) to market movement during the operation.
I'll have a look at the diffs when it opens.

See you later

At the moment M/U spread 6.5 bid for 100.

 

[jls483]

Thanks oatman - can I trade the spread market using IB?

Oh and I now have a few more questions. What time does trading begin and end in FTSE futures at LIFFE? Is there such a thing as after hours trading?

When I place a limit order with IB - is that made public or kept on the IB computer? Is there an order book where people can see that I want to sell a future at 3950? If the market was to open at 3970 would people laugh and buy my future at 3950 or would IB be able to get the market price for my limit order?

Many thanks,

John.

 

[oatman]

Hi JLS,

I can't help you with IB, I don't use them.
On the Ftse future, it trades 08.00 'til 17.30. The official close is at 16.30; it pauses for I think, 30 seconds, then continues. I can see volume for 10 quotes either way(DOM-Depth Of Market), but I don't know who. Your broker can see stops etc. entered thru him. Orders are anonymous. Your orders would not be big enough to worry anyone. At the moment I can see 184 lots bid to 63.5 and 122 offered up to 73.5. Pre opening orders are matched by the system at fair value. For instance you could have pre mkt offers 500 lots at 3900 and bids 4000 for 500. These will open at 3950.
You can get some trickery where large blocks are pulled right at the last second causing a vacuum. Nice if you happen to be on the right side of it! Personally I don't trade 'til about 08.20 letting it settle. Also can get a bit thin after say 16.45 ish.

Hope this helps,

 

[Trader333]

John,

Liffe trading hours for the FTSE future are 8.00am to 5.30pm but there is less liquidity outside of the normal trading hours of the LSE which I think are 8.30am to 4.30pm.

If you place a Limit order on IB then "yes" it is visible to those who have a "Market Depth" subscription.

Your order will not be filled until the market trades near to your limit order.

But why not just place a "Stop Order" order at the price you want to trade at ? This is not visible and would not be filled until the market hits your stop price. In case you are confused by the term "Stop Order" it can be used to enter a trade as well as exit one. So for example:


The market is trading at 3500

You want to go long if the market reaches 3520 so you place a "Stop Order" to go long at 3521.

If and when the market hits 3521 your order is filled and you are now long (or you have a buy position).

You can exit the trade by placing a "Stop Order" at either a fixed profit level or a fixed loss level and in this case it will be a "Sell Stop" order. If you did have 2 "Stop" orders in the market, (1 for a profit target and 1 for stopping a loss), and you get filled on one of them make sure you cancel the other one. If you dont you could suddenly find yourself in another trade and I have seen this happen numerous times to friends of mine who forgot to cancel an order when they had closed a trade.

I hope this helps


Cheers


Paul

 

[jls483]

The situation is I buy at 3920 and I set a limit order to sell at 3950. The market closes at 3940 and then reopens at 3970. If I understand oatman correctly my limit order will be fillled at 3970 not 3950. Obviously I would rather sell at 3970 rather than 3950.

Mind you - I don't know what price the ZZ3 opened at this morning, but my limit order was filled at 08:00:18 at exactly 3950.

John.

 

[TBS]

FTSE futures opened at 3959, went to a high of 3964, dropped to fill the gap down to 3937, and then chrged up to 3974. Retracement back to 3957 and currently bouncing between 3960 and 3970.

I would be interested to know how your limit order was hit first thing as the futures didn't hit 3950 until 08:15 - sounds as if you were taken for at least 9 points.

.. or are you using sb and guaranteed stops?

 

[reactor]

is there any reason for contango? the future still looks very pessimistic.

the ride is better when it's choppier!

jun 03 ftse 100 futures will probably end today around 3950. rumour has it that it will hit 3900 by the end of this week. it is a bank holiday weekend so people may lock in profits near the end of tomorrow taking it to 3900.

 

[oatman]

JLS,

My explanation of how the opening works was simple but I agree with TBS, you were done! You can't be trading futures directly in. Must be a dodgy SB quote. Long weekend coming up, they want their beer money.

 

[jls483]

TBS - I'm using IB and I had a Limit Order to sell the Dec 03 FtSE future at 3950.

I've just looked at the bid/offer spread of zz3 when it opened and I can see why I only got 3950.

I presume that if my limit order had been 3940 - I would still have got something like 3950.

John.

 

[oatman]

Why are you trading Dec? There's no volume there. It's spread related. The vol today is 67. hilo 3973.5/3943 opg 3950.