E-Mini futures options are futures contracts that are traded electronically through the Chicago Mercantile Exchange. The “E” comes from the fact that they are traded electronically, using online resources, and the “Mini” part of the name is due to the fact that these contracts are a fifth of the size of regular S&P futures contracts. Many traders prefer these to other forms of trading, and they are popular in other markets as well as the S&P 500.
The Standard and Poor’s e-mini futures contract is a group of stocks from S&P’s 500 large-cap benchmark stocks. Stocks used to make up the e-mini contract are selected for their industry, size and liquidity. These options tend to trade very quickly in the electronic market. Since an e-mini is a futures contract, the e-mini option covers a period of three months, and a new contract is established at the end of that time. Contracts end in March, June, September and December.
A single E-mini futures contract for the S&P 500 has a value that is 50 times the current value of the S&P 500 stock index. If the stock index has a value of 1,000, for example, an E-mini would be valued at $50,000. A buyer can purchase a contract for a tenth of its face value, so by investing only $500 the trader can control options worth 10 times that amount. He can make or lose money this way, depending on how the day’s trading goes.
The term “tick” is used to describe the change in value of an e-mini option. A tick is the smallest increment of movement for an E-mini, and each tick is worth $12.50. Four ticks together equal a single point, so the value of a point is $50. Daily market changes typically amount to about 15 or 20 points, or 60 to 80 ticks, for a total fluctuation of about $750 to $1,000. This can be up, for a profit, or down, for a loss, and there can be days when the fluctuation is far more than 80 ticks.
Trading e-mini options is far more affordable for individual investors than full options are, allowing people to work on their own instead of as part of a trading group. These futures options also have the advantage of being much more liquid than the larger options, so investors don’t need to tie up their money any longer than they want to. Many people find it appealing that S&P E-mini options can be traded 24 hours a day instead of being limited to traditional trading hours. For such people, these hours are an additional incentive to buy E-minis.
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