Are You Ready To Trade Futures On Microsoft?

For those of you that haven’t heard, single stock futures (SSF) are coming and coming FAST! Yesterday, the London International Financial Futures and Options Exchange (LIFFE) added ten stocks to its proposed list of SSFs, due to start trading January 29, 2001. The U.S. stocks due to be part of the first 25 SSFs include: (T | Quote | Chart | News | PowerRating), (CSCO | Quote | Chart | News | PowerRating), (C | Quote | Chart | News | PowerRating), (XOM | Quote | Chart | News | PowerRating), (MRK | Quote | Chart | News | PowerRating), (INTC | Quote | Chart | News | PowerRating) and (MSFT | Quote | Chart | News | PowerRating).

LONDON, Wednesday, 13 December, 2000 - The London International Financial Futures and Options Exchange (LIFFE) announced an additional 10 Universal Stock Futures taking the total number it will launch for trading on 29 January 2001 to 25.*

In response to the LIFFE’s action, the U.S. House and Senate are preparing to approve SSFs. Their intention is to head off a stampede of investors to the overseas markets if the U.S. doesn’t respond immediately.**

If you think there’s volatility today in the stock market, wait until you see the margin calls for SSFs! Remember, futures allow the investors to participate in market direction at a greatly reduced level of initial capital. Note the term initial, as that is not the entire liability you assume when you buy a futures. If the futures moves against you, your broker demands additional funds, also known as a margin call.

Now in the world of S&P 500 futures, where fellow TradingMarkets.com commentator Lou Borsellino trades, a 2% or 3% move in the underlying is a rather large move. Imagine for a moment, the average stock and its daily movement and how much larger those movements are than a diversified index. For instance, Applied Materials (AMAT | Quote | Chart | News | PowerRating) has run from 38 13/16 last Thursday to 51 Monday and back to 42 in the past week. AMAT has averaged 3 15/16 trading range each day of the past week, which is an 8% move. Without protective puts or calls against an AMAT futures, the average investor would have faced multiple margin calls.

I am bringing this to your attention so you can prepare yourselves for the coming opportunity. Those that are unprepared will find themselves either left out in the cold, or liquidated at the whim of this very fickle market. Without plugging my book, How I Trade Options, too hard, I think you should consider learning how to use options and related strategies to protect your portfolio and make money with SSFs. You can find my book in the www.tradingmarkets.com galleria.

**WASHINGTON--Chicago's futures exchanges are on the brink of a huge legislative victory that will clear the way for single-stock futures and other new financial instruments. After 10 hours of negotiations Wednesday between representatives of the Clinton administration, Congress and the exchanges, agreement was reached late Wednesday night on a comprehensive futures industry deregulation bill.

"I'm very happy with it," said U.S. Rep. Thomas Ewing, R-Pontiac, noting that the final version of the bill will be introduced Thursday and attached to an omnibus spending bill that Congress is expected to pass on Friday. "This will have tremendous impact on keeping us competitive in the world," he said.

As chairman of the agriculture subcommittee that oversees the Commodity Futures Trading Commission (CFTC), the Downstate Republican was a principal sponsor of the bill, which was considered dead when Senate Banking Committee Chairman Phil Gramm, R-Texas, raised several last-minute objections before Congress was scheduled to adjourn for last month's presidential election.

But the Florida election recount extended the lame-duck session of Congress and provided more time to work out a compromise. Otherwise, "we would probably have not been able to reach an agreement," Mr. Ewing said.

Besides single-stock futures, the bill clarifies the legal status of swaps and other derivative financial products traded over-the-counter by banks. A last-minute sticking point concerned regulation of equity swaps by the Securities and Exchange Commission. The bill provides greater certainty that most swaps will not be regulated by either agency, except in certain circumstances.

The bill creates a tiered system of regulation, allowing exchanges the freedom to offer relatively unregulated products to the most sophisticated players in the market.

"The most important thing for the industry is that it will guide the development of the business and the futures of innovation," said Mark Young, a partner in the Washington, D.C., office of Kirkland & Ellis who serves as outside counsel for the Chicago Board of Trade. "It gives you a road map to innovate."

Despite the last-minute hurdles, there was intense pressure to complete action on the bill this year. Several overseas exchanges plan to start trading single-stock futures early next year, which would have put U.S. exchanges at a disadvantage if they couldn't compete. Also, Mr. Ewing is retiring this year, and his likely successor as subcommittee chairman, Rep. Nick Smith, a Michigan dairy farmer, was one of only four votes against the bill when it passed the House with 377 votes in October. *

*Merrion, Paul, "Futures Dereg in Sight," Crain's Chicago Business, 14 December, 2000.