SINGLE STOCK FUTURE TRADING Shaun van den Berg PSG Online: Head of Client Education...

SINGLE STOCK FUTURE TRADING

Shaun van den Berg

PSG Online: Head of Client Education

_______________________________

James Boardman

JSE DerivativesWednesday,23 May 2012

• JSE– Central Orderbook

• PSG Online– What are SSFs– Terminology– SSFs versus Equities.– Risk– Trading Strategy– Pricing– Account Registration– SSF Simulator

OVERVIEW

JSE - A CENTRALISED MARKET

JSE – EVOLVING MARKETS

From this…

JSE – EVOLVING MARKETS

… where you could expect this…

JSE – EVOLVING MARKETS

… to this. Quiet, calm efficiency

JSE - A LEVEL THE PLAYING FIELD

JSE - SSF GUARANTEE HIERARCHY

JSE - IT WAS EASY TO SAY NO…

NO!

• Introduced competition on rates• Now they all come to you, hoping for a

yes…

JSE - CENTRAL ORDERBOOK

YouPlease?

Please? Please? Please?

Please?

JSE - SPREADS

JSE - SPREADS

R100R99 R101

R1.5

R1.5

R1

• Can’t compare absolute spread values between instruments

• Need to compare in percentage of exposure

• Value will be in basis points– 1 Basis point = 0.0001

• On average spreads on Top40 Futures are 25 Basis Points

JSE - SPREAD COST

BIDOFFER

BIDOFFER

(

()

)2

= Spread%

• Parking tickets!

• Magnus de Wet• James Boardman• Rudolf Oosthuizen

– DerivativesTrading@JSE.co.za– +27 11 520 7051

JSE - CONTACT DETAILS

• SSFs are contracts entered into between 2 parties

• Right for the buyer to take delivery of that stock on the date of the contract’s expiry, a ‘deposit’, known as the initial margin is made and used as security

• Close out or Roll positions• An SSF contract is made up of 100

shares geared at around 15%

PSG - WHAT ARE SSFs

• Standardised contract• SAFEX• Partially matched orders simply expire!• Expire March, June, September and

December• Including all relevant dividends and

interest• Go long or Go short• Marked to market daily (MTM)

PSG - SSFs EXPLAINED

• Underlying• Going Long• Going Short• Closing a position• Expiry date• Initial margin• Variation margin• Rolling a position

PSG - TERMINOLOGY

• Highly capital efficient• Low brokerage• Very liquid• Earn interest• Benefit from Corporate Actions• Cheaply diversify risk• Hedge your portfolio

PSG - BENEFITS

PSG - SSFs OR EQUITIES

Joe is confident that Sasol Ltd shares will increase in the coming months.

He has R36,500 which she can invest.

Sasol’s share price is R365, therefore she buys 100 shares.

3 months later the price has increased by 10% so he sells his shares to make a R3,650 profit.

His return on his investment is 10%

John is confident that Sasol Ltd shares will increase in the oncoming months.

Sasol’s share price is R365, therefore he buys a Long Sasol SSF contract (JUN12 SOLQ).

The initial margin set by the broker is R4,950 which is paid by the buyer.

After 3 months the price has increased by 10% and the investor closes out his position and sells out of the Sasol SSF contract he is holding. His profit is R3,650

His return on his investment is 58%.

Joe (Equity / Share Trader) John (SSFsTrader)

• Jack is an SSFs Trader• Jack is confident that Sasol Ltd shares will increase in the coming

months.• Sasol’s share price is R365, therefore he buys a Long Sasol SSF

contract – JUN12 SOLQ at R4 950 initial margin which is paid by the buyer

• The Brent Crude price decreases by $10 a barrel which negatively impacts on Sasol’s share price, which drops to R335 per share

• The SSF contract is made up of 100 underlying shares.• The margin call for Investor B to continue trading is 100 x R30 (R365

– R335) = R 3000 variation margin which needs to be paid in to keep the investors position open. He has now laid out R 7,950

• After a month the share price continues to drop to R300. The investor chooses to close his position and must pay in a further

R 3,500 variation margin.• His total outlay is R 10,950 but he receives his Initial margin back, so

his total loss is R6000 (-121.2%)

PSG - UNDERSTANDING RISK

• Interest payable is determined daily by the market maker in relation to the ruling SAFEX rates.

• Interest will be paid on cash balances at a rate linked to the JSE Trustees rate.

PSG - SSF PRICING

• Brokerage on the Central Orderbook is charged at 0.4% (excl VAT) of the value of the transaction.

• 14% VAT on opening leg and 14% VAT on closing leg

• 0.912% total

• A booking fee of R60

PSG - SSF COSTS

•Identify the candidate•Wait for the breakout •Set a reasonable target price (TP) •Allow the share to retest•Know when your trade has failed•Exit at your price target (TP)•Be patient•Be disciplined

PSG - TRADING STRATEGY

• The more times a share price has touched these areas, the more

valid these levels are & the more important they become.

• The longer these support & resistance levels have been in play,

the better the outcome when the share price finally breaks out.

PSG - IDENTIFY THE CANDIDATE

• Once prices are set to close above a resistance level, a trader will establish a bullish position.

• When prices are set to close below a support level, a trader will take on a bearish position.

• The exit point itself should be set at a critical price level, e.g. Support & Resistance

PSG - ENTRY AND EXIT POINTS

PSG - ASCENDING TRIANGLES

TP

• Mentored learning• Full day workshop (09h00 – 16h00)

– Monday, 25 June 2012

• Fundamental Analysis & Investing • Technical Analysis & Trading • Cost: R200

PSG - MARKETWORX

• Click here• Submit your details• Login • Select your SSFSM account (top right)

• Reset simulator• Select “New Order”

PSG - SIMULATOR TRADING

• Click here

SSF ACCOUNT REGSITRATION

SSF Margin

Initial margin

percontract

Top 40 SharesALSI & ALMI

Copper, Gold, Platinum & Silver

WTI Crude Oil

SSF Central Order Book

ALSI – Most popularTop 40 Shares

Liquidity, Cheap, Tight SpreadsLong & Short

SSF Order Book – ALSI Trade

Margin = R28 050Exposure = R280 500 Cost R25 per contract

R10 per point100 points move =

R1000

Buy (Long) @ 30 089Moves 300 points up

= 30 389300 points move x R10

= R3 000

2 point spread

= R10 x 2 points

= R20

SSF Order Book – ALMI Trade

Margin = R2805Exposure = R28 050

Cost R55 per contractR1 per point

100 points move = R100

Buy (Long) @ 30 050Moves 300 points up

= 30 359300 points move x R1

= R300 x 5 = R1500

5 Contracts x R2 805 =

R14 025

40 point spread

= R1 x 40 points

= R40

SSF Simulator (SSFSM)

Step 1Select SSFSM

Step 2Check

R100 000

Step 3Click ResetSimulator

New Order (ALSI)

New Order (ALSI Buy)

Step 2 Enter

Contracts

Step 1Select

Direction

Step 3 Enter

Price (R)

Step 4Click

Submit Order

Example 1:Buy (Long) 1 contract @ 30 089

Trade History (ALSI Buy)

Margin Movement

Select Trade

History

Financial History (ALSI Buy)

Select Financial History

Margin & Brokerage

R25Margin = R28 050Exposure = R280 500 Cost R25 per contract

R10 per point100 points move =

R1000

New Order (ALSI Sell)

Sell (Long Close)Moves up to 30 389

= 300 points move x R10 = R3 000

Step 1Select

Direction

Step 2 Enter

Contracts

Step 3 EnterPrice

Step 4Click

Submit Order

Trades History (ALSI Sell)

Margin Returned

Profit or

Loss

Financial History (ALSI Sell)

Select Financial History

SSF Simulator - Portfolio

Select Portfolio

Example 3:Sell (Short) @ 30 089

Moves down to 29 789= 300 points move x R10

= R3 000

Example 2:Buy (Long) @ 30 089

Moves down to 29 921 = 169 points move x R10

= R1 690 loss(Margin Call)

New Order (Remgro Buy)

Step 1Select

Direction

Step 2 Enter

Contracts

Step 3 Enter

Price (R)

Step 4Click

Submit Order

Trade History (REM Buy)

Margin Movement

Select Trade

History

Margin = R2 1225 Contracts

5 x R2 122 = R10 610Exposure = 5 x 100 x

R131.50 = R65 750

Financial History (REM Buy)

Select Financial History

Margin & Brokerage

R309.03Brokerage =

Exposure R65 750 x 0.47% (VAT incl) =

R309.03

SSF Simulator - Portfolio

Select Portfolio

Exposure 5 x 100 x R131.50 = R65 750

New Order (Remgro Sell)

Step 1Select

Direction

Step 2 Enter

Contracts

Step 3 Enter

Price (R)

Step 4Click

Submit Order

Trade History (REM Sell)

Margin Returned

Select Trade

History

Profit or

Loss

Sell (Close) REMJUN12contract

@ R142.00

Exposure = 5 x 100 x R142.00 = R71 000

Financial History (REM Sell)

Select Financial History

Brokerage&

Profit

Brokerage = R71 000 x 0.47% (VAT incl.) =

R333. 70

Profit = R71 000 – R65 750

= R5 250

• General enquiries– 0860 PSG PSG (774 774)– info@psgonline.co.za– www.psgonline.co.za

• Trading assistance– Lawrence Marshall– lawrence@psgonline.co.za

• Educational enquiries– education@psgonline.co.za

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Contact us

Thank You

shaunvdb@psgonline.co.za

011 996 5200