Get Ready for Single-Stock Futures

It's been a long, hard trip for single-stock futures. Banned 20 years ago, the contracts have been at the center of a bitter regulatory turf war, shunned by competition-wary exchanges and dogged by public image problems -- all before they ever began trading.

Now, with their regulation split between the Commodities Future Trading Commission and the Securities and Exchange Commission, single-stock futures are ready to debut on public markets. While nobody's betting they will be an overnight success, experts say they offer a good hedging option for traders who know what they're getting into.

The Primer

Investors might assume that a single-stock future is like an option given that both deal with the price of a security some time hence. But in fact, futures act more like stocks bought on margin. For one thing, they don't carry a strike price, meaning an owner is obligated to take delivery of the underlying shares regardless of how much they cost at execution. Futures are purely directional plays: bearish if sold, bullish if bought. ...