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, fittingly, comprised of 500 different large companies.
The big S&P Futures contract was originally priced by multiplying the quoted futures price by $500. For example, if the S&P was trading at $800, the value of the big contract was $400,000, or $500 x $800. Eventually, the CME cut the contract multiplier in half to $250 times the price of the futures index.
E-mini S&P Futures are one-tenth the value of the big contract. If the S&P 500 futures price is $800, this results in an e-mini being valued at $40,000. The “e” in e-mini stands for electronic.
Like with all futures, investors are only required to front a fraction of the contract value to take a position. This represents the margin on the futures contract. These margins are not the same as margins for stock trading; futures margins show “skin in the game,” which must be offset or settled.
Cash Settlement of S&P 500 Futures
E-Mini S&P, often abbreviated to “E-mini” (despite the existence of many other E-mini contracts) and designated by the commodity ticker symbol ES, is a stock market index futures contract traded on the Chicago Mercantile Exchange’s Globex electronic trading platform. The notional value of one contract is 50 times the value of the S&P 500 stock index.
It was introduced by the CME on September 9, 1997, after the value of the existing S&P contract (then valued at $500 times the index, or over $500,000 at the time) became too large for many small traders. The E-Mini quickly became the most popular equity index futures contract in the world. The original (“big”) S&P contract was subsequently split 2:1, bringing it to $250 times the index. Hedge funds often prefer trading the E-Mini over the big S&P since the latter still uses the open outcry pit trading method, with its inherent delays, versus the all-electronic Globex system. The current average daily implied volume for the E-mini is over $150 billion, far exceeding the combined traded dollar volume of the underlying 500 stocks.
In June 2005 the exchange introduced a yet smaller product based on the S&P, with the underlying asset being 100 shares of the highly-popular SPDR exchange-traded fund. However, due to the different regulatory requirements, the performance bond (or “margin”) required for one such contract is almost as high as that for the five times larger E-Mini contract. The product never became popular, with volumes rarely exceeding 10 contracts a day.
The contract rollover months are March (ESH), June (ESM), September (ESU) and December (ESZ) with each month having a symbol suffix value. The base S&P E-mini futures ticker symbol is “ES”. However, a continuous (or continuously quoted) S&P contract, TradeStation symbol “@ES”, exists so traders can monitor price action over multiple contract periods.
A lot of stock trading is based on what is deemed “fair value” for the S&P 500 futures. Trading in the S&P 500 futures goes on in Chicago for a half hour past the New York close. Even after the Chicago close, the futures continue to trade, albeit thinly, in after-hours CME Globex trading. If, in the morning, the futures are trading much higher than the cash S&P 500, institutions will sell the futures and buy the underlying stocks, giving stocks a boost at the open. If, on the other hand, the futures aren’t trading much higher than the S&P 500’s close, stocks can go down.
Trading occurs from Monday and Thursday 5:00 PM through 3:15 PM and from Sunday 5:00 PM Sunday through Monday 3:15 PM. Conversely, weekdays from 3:16 PM to 4:59 PM the market is closed for system maintenance. All time is Chicago time or Central time.