Stock Index Futures
Stock index futures are contracts based on stock market indices, such as the Dow Jones Industrial Average, Standards & Poor’s 500 Index, and the New York Stock Exchange composite index.
Futures contracts are written in a great part of the important stock market indices:
- Dow Jones Industrial Average
- S&P 500 Index
- S&P 400 Mid-Cap Index
- NYSE Composite Index
- NASDAQ 100 Index
- Russell 2000 Index
- NIKKEI 225 Stock Average
- Other foreign stock market indices
Stock index futures are similar to other financial futures except for the fact that with stock index futures, the delivery is not in stocks but in cash at eexpiration. So, if the Dow Jones Industrial Average has a price of $9,843, the futures contract has a value of the contract size multiplied by the price (10 x 9,843 = $98,430).
Delivery of this contract would not be of 30 stocks of the Dow Jones Industrial Average but in cash. Both, speculators and hedgers, use the stocks index futures contract.
Speculators benefit at taking long positions in stock index futures when the market is in raise and loses when prices decline.
Contract sellers benefit when the stock market falls and loses money when market prices boost. Portfolio managers hedge their positions against the adverse swaying in market prices by buying or selling short stock index futures contracts that equal the conformation of their portfolios.
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