Single-Stock Futures

8 Pages Posted: 30 May 2017

See all articles by Robert M. Conroy

Robert M. Conroy

University of Virginia - Darden School of Business

Abstract

Jack Goodwin had recently read an article on using futures contracts on individual stocks for hedging purposes. He held about 500 shares of Abbott Laboratories in his trading portfolio. While he was concerned about the share price falling in the short run, he was bullish over the long run. Of course, he could sell now and buy later, but that would mean he would have a taxable capital gain, which he wanted to avoid. He thought the single-stock-futures contracts offered on the OneChicago Exchange might present the opportunity to hedge the price risk.

Excerpt

UVA-F-1640

Dec. 28, 2011

Single-Stock Futures

Jack Goodwin had recently read an article on using futures contracts on individual stocks for hedging purposes. He held about 500 shares of Abbott Laboratories in his trading portfolio. While he was concerned about the share price falling in the short run, he was bullish over the long run. Of course, he could sell now and buy later, but that would mean he would have a taxable capital gain, which he wanted to avoid. He thought the single-stock-futures (SSF) contracts offered on the OneChicago Exchange might present the opportunity to hedge the price risk. It was August 16, 2010, and Abbott Labs closed at $ 50.34.

OneChicago Exchange

Despite the fact that SSF contracts were widely traded outside the United States, prior to 2000, their listing had not been allowed on U.S. exchanges. There were a number of reasons why SSF contracts were not permitted, but the central issue revolved around a dispute over regulatory authority between the U.S. (CFTC) and the . The dispute was resolved with the passage of the Commodity Futures Modernization Act of 2000 by the U.S. Congress. Under this law, the two agencies shared jurisdiction.

. . .

Keywords: single stock futures, hedging, stock exchange, OneChicago Exchange, derivatives, dividends

Suggested Citation

Conroy, Robert M., Single-Stock Futures. Darden Case No. UVA-F-1640, Available at SSRN: https://ssrn.com/abstract=2974466 or http://dx.doi.org/10.2139/ssrn.2974466

Robert M. Conroy (Contact Author)

University of Virginia - Darden School of Business

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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