How to Trade the New Single Stock Futures

How to Trade the New Single Stock Futures

Masonson, Leslie N

How to Trade the New Single Stock Futures By Jake Bernstein Dearborn Trade Publishing Chicago (2003) 216 pages, $40

Jake Bernstein, a prolific author (more than 35 books) with more than 30 years of experience as a trader, advisor and educator of futures and stock traders, has written an easy-to-understand, readable introductory text on single stock futures (SSFs).

SSFs are futures on individual stocks, the latest wrinkle in the futures markets. Futures on stock indexes – the S&P 500 index and Value Line index – were introduced in 1982. In the United States, more than 80 SSFs each trade currently on NQLX – originally a joint venture of Nasdaq and the London International Financial Futures and Options Exchange before Nasdaq pulled out – and OneChicago, a combined effort of the Chicago derivatives exchanges. The underlying stocks are well-capitalized, well-known names such as GE, GM, Johnson & Johnson, IBM, Qualcomm and Microsoft.

Bernstein covers the development and rationale for SSFs but first steps back in time to review stock market history including the increase in volatility from 1982-2002. he points out that SSFs, listed on a fully automated exchange, “promised to bring new nourishment into the securities and futures industries.”

Bernstein then provides a concise overview of the history of futures trading and stock trading. He briefly reviews the basics of stock and futures trading, followed by the marriage of the two. This leads into a helpful discussion of the mechanics, margin requirements and delivery considerations of SSFs. This is followed by a fairly simplified review of fundamental vs. technical analysis, chart patterns, trendlines and moving averages with chart examples.

In a 16-page chapter, Bernstein explains “spread” trading, which he believes is a potentially profitable tool in futures trading. (In stocks, this often is referred to as “pairs” trading.) Bernstein backs up his coverage of spread trading basics with analysis of volatility, examples with chart explanations, and advantages and disadvantages of spreads.

Potentially most helpful to new traders is a discussion, of placement of orders. It covers the typical types of orders – for example, market on close, various stops and good-tilcancelled – that most investors and traders are familiar with.

Bernstein lightly covers two basic day-trading strategies (channel surfing between a 10-day moving average of the price highs and an 8-day moving average of the price lows and a 30minute breakout pattern) in a short nine-page chapter. he admits that these strategies were developed for regular futures trading but should work · with SSFs. Another 11-page chapter on trading psychology really applies to any trading situation.

This book is light reading compared to many of Bernstein’s other works. It does not provide readers with either an in-depth review of SSFs or more than a few generic trading methods to use with those instruments. It is a wellwritten primer for the neophyte who does not have much of a background in futures or trading.

Leslie N. Masonson is president of Cash Management Resources, a financial management consulting firm; author of the recently published all About Market Timing and Day Trading on the Edge, and a student of the market for more than 40 years. E-mail: lesmason@frontiernet.net.

Copyright Futures Magazine Group Mar 2004

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