S&P Futures are financial futures which allow an investor to hedge with or speculate on the future value of various components of the S&P 500 Index market index. The futures instruments are derived from the S&P 500 Index is E-mini S&P Futures. S&P 500 futures contracts were first introduced by the CME in 1982. The CME added the e-mini option in 1997. The bundle of stocks in the S&P 500 is, per the name, composed of stocks of 500 large companies.
All of the S&P derived future contracts are a product of the Chicago Mercantile Exchange (CME). They expire quarterly (March, June, September, and December), and are traded on the CME Globex exchange nearly 24 hours a day, from Sunday afternoon to Friday afternoon.
- S&P 500 Futures (ticker: SP) contract’s minimum tick is 0.25 index points = $62.50 While the performance bond requirements vary from broker to broker, the CME requires $21,000 to maintain the position.
S&P Futures contracts are commonly used for hedge or speculative financial goals. S&P Futures contracts are used to hedge, or offset investment risk by commodity owners (i.e., farmers), or portfolios with undesirable risk exposure offset by the futures position.
S&P Futures trade with a multiplier, sized to correspond to $250 per point per contract. If the S&P Futures are trading at 2,000, a single futures contract would have a market value of $500,000. For every 1 point the S&P 500 Index fluctuates, the S&P Futures contract will increase or decrease $250.
US Tax Advantages
In the United States broad-based index futures receive special tax treatment under the IRS 60/40 rule. Stocks held longer than one year qualify for favorable capital gains tax treatment, while stocks held one year or less are taxed at ordinary income. However, proceeds from index futures contracts traded in the short term are taxed 60 percent at the favorable capital gains rate, and only 40 percent as ordinary income. Also, losses on NASDAQ futures can be carried back up to 3 years, and tax reporting is significantly simpler, as they qualify as Section 1256 Contracts.
- E-mini S&P 500 Futures Quotes, CME Group. Retrieved March 15, 2020
- Outrights/Vol Scans for Margins, CME Group. Retrieved March 15, 2020.
- Hurt, Chris and Wisner, Robert N. “Principles of Hedging with Futures”, Marketing and Utilization, Purdue University, May 2002. Retrieved March 15, 2020.
- Futures, Bloomberg. Retrieved March 15, 2020.
- Premarket Stock Trading, CNN Money. Retrieved March 15, 2020.
- S&P Futures Live, SPFutures.org. Retrieved March 15, 2020.
- IRS Code, Section 1256(a)&(b).
- Topic No. 409 Capital Gains and Losses, Internal Revenue Service, February 11, 2020. Retrieved March 15, 2020.