E-mini futures are electronically traded futures contracts. The E-mini S&P 500 futures are widely used by traders to take positions on the S&P 500 stock index and the direction of the stock market. The E-mini S&P contracts trade on different exchanges than stocks, and trading works differently than for stocks.
E-mini S&P 500 Contract Specifications
One E-mini S&P 500 futures contract is valued at 50 times the current level of the S&P 500 stock index. For example, if the stock index is at 1,320, one E-mini contract has a value of $66,000. The minimum value change on the contract -- called a "tick" -- is 0.25 index point. This makes one tick worth $12.50 in this case. If the S&P 500 changes by one point, the E-mini contract value changes by $50. E-mini S&P 500 futures have expiration dates in March, June, September and December. Expiration is at 7:30 a.m. on the third Friday of the month.
E-mini S&P 500 Options
Three types of put and call options trade against the E-mini S&P 500 futures contract. Each put or call option is for one E-mini futures contract. The American-style options expire with the specified futures contract. Contracts which expire at the end of the month and an additional type of contracts which expire at the end of the week are European-style options. An American-style option can be exercised by the option holder at any time until expiration. European-style options are only exercised at expiration. All option types exercise into a single E-mini S&P 500 futures contract.
Trading the E-mini contract directly requires a trader to put up a margin deposit for each contract traded. Futures trades can be opened in either direction, a buy trade to profit from an increasing index value or a sell trade if the index is expected to decline. The position gains or loses from the first tick change away from the entry price. With options, call options are purchased to profit from a rising futures value and put options for an expected drop in value. The futures price must change by the amount paid for the option contract before an option position is profitable.
The maximum risk from purchasing option contracts is limited to the premium paid for the contracts. The premium paid will be significantly less than the margin deposit required to trade the futures contract. Options also incur the risk that the futures value will not change enough to cover the option cost before the expiration date, leaving the trade at a loss. The risk of loss from trading the futures directly is not limited. If the futures value moves too far in the wrong direction, the trader may be required to provide additional money to maintain the required level of margin deposit.
Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.