NEW YORK (
) -- What if I could show you a cheaper way to buy stocks? No, not through options.
As an investment-adviser representative for Kingsview Asset Management LLC, which is state registered, I am always on the lookout for alternative products that can help my clients achieve their investment objectives. One product that can be beneficial is single stock futures. By using this innovative, but largely unknown, product, investors can "refinance" their equity positions at a lower rate.
Single stock futures, or SSFs, are an alternative vehicle to invest and trade equity products. SSFs are futures contracts on individual equities, narrow-based indices or exchange traded funds, or ETFs. A single stock futures contract held through expiration results into either stock ownership for a long position or stock delivery for a short position. An advantage over a traditional options contract is that a SSF contract can't potentially become worthless -- unless the stock goes to zero.
These products are traded on OneChicago and regulated by the CFTC and SEC. Singe stock futures may be traded in either a securities or futures account. SSF contracts executed at OneChicago are cleared and settled by the OCC, formerly known as the Options Clearing Corp. As of this writing, OneChicago lists 2,969 products, including 479 ETFs.
So how does it work?
1 SSF contract = 100 shares of stock.
The futures price is determined by taking the stock price plus interest minus dividends.
Multiple expirations with the two front months as well as the next two quarterlies.
Expirations are the third Friday of the month and, if not a business day, on the preceding business day.
There is a 20% margin requirement. Users have the ability to post Treasuries, cash or equities as collateral for funding positions.
Think about that for a minute. Regulation T in a securities account requires a 50% margin deposit. With single stock futures, you only need to put up 20% -- that leaves a lot of capital that can be invested elsewhere. In addition, when you factor in the current broker's call rate for owning stocks on margin, this cheaper alternative lowers financing costs.
Want to short a hard-to-borrow stock? With single stock futures, there's no hassle. The futures contract may be sold just like a traditional futures contract, thus initiating a short position.
Here are some additional benefits of this product. It:
Acts as a synthetic stock loan or stock borrowing through exchange of futures for physical ("EFP") transactions.
Potentially reduces funding costs for long positions and potentially increases rebates on short positions.
Serves as an alternative to swap and equity option products.
Reduces working capital, thus increasing operating cash flow.
Improves balance sheet ratios (liquidity, debt and capital ratios).
Offers the ability to collateralize margin with assets other than cash.
Interest-rate prices are set by the open market rather than an individual counter-party.
Provides the ability to create a custom basket index.
This product is growing at a very high rate. I believe it can provide investors with some excellent alternatives in accomplishing their investment goals. Feel free to email me for additional details on this product or to discuss how it may fit into your current portfolio and investment strategy.
Futures and options trading is inherently risky and unsuitable for all investors. Past performance is not necessarily indicative of future results. Stop-loss orders intended to limit losses to certain amounts may not be effective because market conditions may make it impossible to execute such orders.