E Minis

E-mini
STOCK INDEX FUTURES

TM
equity layout_FINAL for pdf 3/13/03 4:12 PM Page 2
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contents
I thebasics
II about futurescontracts
III CME E-mini stock index futures:contract specications
IV tradingexamples
V comparingstock index futuresand exchangetraded funds
VI gettingstarted tradingCME stock index futures
VII about Chicago MercantileExchange
VIII quick reference
THE BASICS
E-mini
INTRODUCTION
1
thebasics
Chicago MercantileExchangesE-mini futurestrack the
most popular broad-based stock index benchmarks
in the nancial world.The E-mini futures complex
consists of thefollowing four products:
E-mini S&P 500
futures
Created to track theStandard & Poors500 Index, the
key benchmark for large-capitalization U.S. stocks
E-mini NASDAQ-100
futures
Created to track theNASDAQ-100 Index, a
key benchmark of technology, telecom and
biotechnology issues
E-mini Russell 2000
futures
Created to track theRussell 2000 Index, oneof the
major benchmarksfor small-capitalization U.S. stocks
E-mini S&P MidCap 400
futures
Created to track theStandard & Poors MidCap
400 Index, thekey benchmark for mid-size
U.S. companies
Pioneered by Chicago MercantileExchange(CME) and
sequentially launched between 1997 and 2002, all
E-mini futures are traded completely electronically
viaelectronic order management softwareon your
PC or through aregistered commodity futuresbroker
over the telephone. In addition to offering unique
opportunities for risk management and market
exposure, E-mini stock index futures are appealing
becauseof their excellent liquidity and around-the-
clock availability.At one-fth thesizeof their standard
counterparts, thesecontractshavefound an audience
among professional and individual investors alike.
The E-mini S&P 500 and E-mini NASDAQ-100
contracts are the fastest growing products CME has
ever launched.Thesuccess of theE-mini complex
overall has established CME as theIndex Exchange,
with more than a 95%market share of all
domestically traded stock index futures and options
on futures. CMEs Equity quadrant as awholeis
also known as oneof theworlds most liquid trading
environments for stock index products, when
measured in terms of volume and open interest.
The strategies/ opportunities available to the
trader makeE-mini stock index futures well worth
considering. Please note, however, that futures
trading is not suitablefor all investors, and involves
therisk of loss, including thepossibility of loss
greater than your original investment.
of time, but market forces (such as arbitrage) usually
work to bring thesebrief variances back into line.
If in trading futures you purchasean index futures
contract, you hopeto gain from futurepriceincreases
when you offset your tradeby selling thecontract.
Correspondingly, if you initially sell (i.e., selling short)
an index futures contract, you hopeto gain if the
priceof thecontract declines. Remember though, if
your forecast proveswrong, you risk loss.Therapid
pricechangesassociated with stock indexesand stock
index futures createcontinuous opportunities for
thesuccessful trader. It can bemoreefcient, however,
for atrader who believesthemarket will declineto
tradestock index futures instead of equity securities.
This is becauseastock index futures tradeinvolves
just onetransaction to get into themarket and oneto
get out, while selling abasket of equity securities
is likely to involvenumerous transactions.
3
thebasics
WHAT ARE STOCK INDEX FUTURES?
2
thebasics
Stock index futures arecontracts to buy or sell the
valueof aspecic stock index at aspecic priceon a
specic datein thefuture. Businessesand individual
traders tradestock index futures for different reasons,
but primarily to try to prot from or protect
themselvesfromchangesin thepriceof theunderlying
indexes. Financial professionals, such as pension
and mutual fund managers, typically useCME index
futures for managing risk and hedging portfolios
against adverse price moves. Others, such as day
traders or position traders, tradetheseproducts to
speculateon thepriceuctuationsof thestock market.
Stock index futuresclosely follow thepricemovement
of their respectiveindexes, typically referred to as
theunderlying or cash indexes. Intraday, monthly
and yearly correlations between cash indexes and
futuresarevery close. On someoccasions, thefutures
may divergefrom thecash index for short periods
Average Daily Volume
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No Small SuccessStoryGrowth of E-mini S&P 500 Futures No Small SuccessStoryGrowth of E-mini NASDAQ-100 Futures
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thebasics
WHY TRADE E-MINI STOCK INDEX FUTURES?
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thebasics
Growth of E-mini Russell 2000 Futuresand E-mini S&P MidCap 400 Futures
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E-mini Russell 2000 Futures
S&P E-mini MidCap 400Futures
CMEs stock index futures comprisetheExchanges fastest growing products for anumber of compelling
reasons.Theseproducts offer:
A fast, cost-effectiveway to actively tradeproducts that track thestock indexes and offer theequivalent of
broad market exposureto avariety of major stock indexes
Substantial liquidity in terms of largeopen interest, volumeand tight bid/ offer spreads
Onlineaccess availablearound theglobeand virtually around-the-clock throughout thetrading week
Theability to employ avariety of trading strategies, such as hedging strategies (to attempt to protect a
portfolio against adeclining market) and spreading strategies (to attempt to takeadvantageof therelative
out-performanceof onesector of themarket versus another)
Potentially lower trading costs compared to trading abasket of equities
7
thebasics
STOCK INDEX FUTURES STOCKS
Series 3 licensed Series 7 licensed
Type of broker commodity futures broker stock broker
Underlying Cash index Ownership of shares in acompany
Settlement Mark to market daily T+3*
Performancebond met Reg.T margin:
viacash or T-bills put up 50%, borrow 50%.
Can rangefrom 520% Interest charged
Margining of contract value on borrowed funds
Leveragecan magnify Leveragecan magnify gains
gainsaswell as losses as well as losses by two-fold,
Risk by several fold assuming Reg.T margins
No uptick rule Uptick rule**
No borrowing of shares Short seller borrows shares and must pay
Short Selling No dividends on futures dividends to owner of shares (long)
Online Availability Yes Yes
Commodity Futures Trading Securities and Exchange
Regulation Commission (CFTC) Commission (SEC)
Financial Safeguards CME Clearing House Securities Investors Protection Corporation (SIPC)
6
thebasics
DIFFERENCES BETWEEN TRADING STOCK INDEX FUTURES
AND STOCK INDEXES
* Dateof transaction plusthreedays.
** Theuptick rulestatesthat beforeashort salecan beinitiated, astock must tradeon an uptick
(e.g., atransaction whereby astock tradesup, for examplefrom40.00 to 40.01.)
BUYING AND SELLING STOCK INDEX FUTURES
Buy Low/ Sell High,or ViceVersa
For thosewilling to incur therisk, you can prot
from trading stock index futures thesameway as any
other investmentby buying low and selling high.
Onedifferencewith futures, however, is that its just
as common to sell shortto sell rstand then
buy back later as it is to buy rst, or go long. With
futures trading, if you think prices are going up,
you simply establish a long (buy) position, and
if you think prices are going down, you initiate
ashort (sell) position.
GettingIn and GettingOut
Futures in general lend themselves to a variety of
different trading timeframes: short-, medium- or
long-term. Electronically traded stock index futures,
however, can beparticularly attractiveto shorter-
term or day-traders, becausetheuctuations in the
index markets makeit possibleto takeadvantage
of short-term pricemovements.
Onceyou haveestablished your position, you have
threealternatives:
Offset your position by takingan equal but
oppositeposition.
You can exit from any futures position before
expiration by taking an equal but oppositefutures
position (selling if you havebought; buying if
you havesold). Most futures areoffset in this way.
You dont haveto wait until theexpiration date
to completeyour tradein fact, few investors do.
Wait until your contract expires,and then make
or takecash settlement.
Cash settlement is madeaccording to aSpecial
Opening Quotation (SOQ), apricecalculated for
each domestic stock index product.This means
your account will bedebited or credited, in cash,
thedifferencebetween your purchase/ saleprice
and thenal settlement as determined by theSOQ.
For adetailed explanation of thisprocess, seethe
CME Web site at www.cme.com. Of course if you
offset your position, this process doesnt apply.
Rolltheposition over from onecontract
expiration into thenext.
If you hold along position in an expiration month,
you can simultaneously sell that expiration
month and buy thenext expiration month (known
asacalendar spread) for an agreed-upon price
differential. By transferring or rolling aposition
forward this way you are able to hold it for a
longer period of time. For example, if atrader is
holding aMarch E-mini futures contract, heor
she can sell the March futures before expiration
and buy aJune futures, thereby expanding the
timeframeof his trade.
E-mini
ABOUT FUTURES CONTRACTS
11
about futurescontracts
To determinethevalueof astock index futures contract, you need to know its multiplier and thecurrent
index futures level.
E-mini S&P 500
Index value x $50 =One E-mini S&P 500 futures contract value
TheE-mini S&P 500 multiplier is $50.
If theS&P 500 futures index level is 950, multiply that by $50.
950 x $50 = $47,500
If you buy oneE-mini S&P 500 futures contract at 950, you aretrading an instrument valued at $47,500.
Remember: It isnot required to put up thefull contract value.Your performancebond enablesyou to control aconsiderableamount
of product for afraction of itsvalue.
E-mini NASDAQ-100
Index value x $20 =One E-mini NASDAQ-100 futures contract value
TheE-mini NASDAQ-100 multiplier is $20.
For example, if theNASDAQ-100 index level is 1100, multiply that by $20.
1100x $20 = $22,000
If you buy oneE-mini NASDAQ-100 futurescontract at 1100, you aretrading an instrument valued at $22,000.
E-mini Russell 2000
Index value x $100 =One E-mini Russell 2000 futures contract value
TheE-mini Russell 2000 multiplier is $100.
For example, if theRussell 2000 index level is 400, multiply that by $100.
400x $100 = $40,000
If you buy oneE-mini Russell 2000 futurescontract at 400, you aretrading an instrument valued at $40,000.
E-mini MidCap 400
Index value x $100 =One E-mini S&P MidCap 400 futures contract value
TheE-mini S&P MidCap 400 multiplier is $100.
For example, if theS&P MidCap 400 index level is 450, multiply that by $100.
450x $100 = $45,000
If you buy oneE-mini S&P MidCap 400 futurescontract at 450, you aretrading an instrument valued at $45,000.
WHATS A CONTRACT WORTH?
CME E-mini stock index contracts trade in quarterly time frames, with March, June, September and
December expirations. CME uses thefollowing ticker symbols to distinguish each contract and each month.
However, quotevendors may display theseproducts differently. Beforeyou trade, talk to your vendor or
broker to learn how they display quotes.
E-MINI STOCK INDEX FUTURES SYMBOLS MONTH SYMBOLS FOR CME CONTRACTS
Contract CME Ticker Expiration Months
Symbol March J une September December
E-mini S&P 500 ES H M U Z
E-mini NASDAQ-100 NQ H M U Z
E-mini Russell 2000 ER2 H M U Z
E-mini S&P MidCap 400 EMD H M U Z
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EXPIRATIONS AND CONTRACT SYMBOLS WHATS A TICK AND WHATS IT WORTH?
Unlikestocks, which movein penny increments, futures contracts movein minimal increments called ticks,
and thevalueof thetick is different for each product.
E-mini S&P 500 Futures
TheE-mini S&P 500 futures tick valueis 0.25 index point, or $12.50 per contract.Thus:
A moveof onetick, from 950.00 to 950.25, equals $12.50.
With this move, along (buying) position would becredited $12.50, and ashort (selling) position,
debited $12.50.
A moveof oneentireE-mini S&P 500 futures index pointtheequivalent of four tickswould equal $50,
and so on.
E-mini NASDAQ-100 Futures
TheE-mini NASDAQ-100 futures tick valueis 0.50 index point, or $10 per contract.Thus:
A moveof onetick, from 1100.00 to 1100.50, equals $10.
With thismove, along (buying) position would becredited $10, and ashort (selling) position debited $10.
A moveof oneentireE-mini NASDAQ-100 futures index pointtheequivalent of two tickswould equal $20,
and so on.
E-mini Russell 2000 Futures
TheE-mini Russell 2000 futures tick valueis 0.10 index point, or $10 per contract.Thus:
With thismove, along (buying) position would becredited $10, and ashort (selling) position debited $10.
A moveof oneentireE-mini Russell 2000 futures index pointtheequivalent of ten tickswould equal
$100, and so on.
E-mini S&P MidCap 400 Futures
TheE-mini S&P MidCap 400 futures tick valueis 0.10 index point, or $10 per contract.Thus:
With thismove, along (buying) position would becredited $10, and ashort (selling) position, debited $10.
A moveof oneentireE-mini S&P MidCap 400 futures index pointtheequivalent of ten tickswould
equal $100, and so on.
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FuturesPrices:Termsto Know
Thefollowing termswill help you understand futures
pricequotesin both onlineand print formats.
Basis (or Premium/Discount)
Futures contracts sometimes tradeat discounts or
premiums to their underlying cash instruments
depending on cost-of-carry factors.
Call
Theright, but not theobligation, to buy afutures
contract at theoptions strikepriceon or beforethe
expiration date.
High
Top bid or top priceat which acontract was traded
during thetrading period.
Life-of-contract highs and lows
Thehighest priceor bid and thelowest priceor
offer reached in thelifetimeof afutures contract or
aspecic delivery month.
Low
Lowest offer or thelowest priceat which acontract
was traded during thetrading period.
Net change
Theamount of increaseor decreasefrom the
previous trading periods settlement price.
Open
The price at which the rst transaction was
completed.
Open interest
Theaccumulated total of all currently outstanding
contracts. Refers to unliquidated purchases and sales.
Put
Theright, but not theobligation, to sell afutures
contract at theoptions strikepriceon or beforethe
expiration date.
Settle (Settlement price)
Theofcial daily closing price, typically set at the
midpoint of theclosing range.
Strike price
Thepriceat which thebuyer of acall (put) option
may chooseto exercisetheright to purchase(sell)
theunderlying futures contract. Also known as
exerciseprice.
Volume
Thenumber of contracts traded for each delivery
month during thetrading period.
WhatstheCurrent Price?
An important question! Real-time, online price information is now available directly from CME on a
subscription basis.To nd out more about this highly cost efcient and customizable service, please go to
www.cme.com and click on E-quotes on thesites homepage. Prices arealso availablethrough anumber
of different quotevendors.You may also ask your broker about thechoices available.
How to Read Index Prices
In addition to streaming and real-timequotes, you will also want to know how to interpret futures prices
reported in newspapers and other print sources. Although theamount of information published by asource
often differs, theinformation will look something likethetablebelow.
FUTURES
E-MINI NASDAQ-100 INDEX (CME) $20 TIMES INDEX
Lifetime Lifetime Open
Open High Low Settle Change High Low Interest
September 1101.50 1103.50 1097.50 1100.00 -10.80 1104.00 1071.50 165,500
December 1106.50 1112.50 1104.00 1104.00 -9.50 1120.00 1092.00 721
March 1110.50 1116.00 1122.00 1110.00 -10.00 1140.00 1100.00 52
Est vol 280,172; vol Fri 282,269; open int 166,273 +1000
Thetables in thedaily newspaper listings reect theprevious days prices. Open interest gures are
published on atwo-day lag.
GETTING PRICE INFORMATION
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E-mini
CME E-MINI STOCK INDEX FUTURES:
CONTRACT SPECIFICATIONS
100%Electronic
With no trading pits or paper order slips, E-mini
stock index trades areexecuted efciently and fast on
CMEs GLOBEX electronic trading platform. And
becausetheE-mini contractstradein an all-electronic
open auction, theres no worrying about routing
your order across multiple markets for that elusive
best pricethebest pricerules theday. Plus with
virtually around-the-clock access, trading takes place
on yourtime.
How Do You Connect to theGLOBEX Platform?
You can connect to the GLOBEX platform in
different ways. Somebrokeragerms providetheir
own softwarefor you to useon your PC, or you
might usetrading softwareprovided by oneof the
many softwarevendors whoseproducts support
thesecontracts. Customerscan now also connect via
theInternet using CMEs new GLOBEX Trader
SM
Internet option. For connectivity options visit
www.cme.com.
TRADING ON CMES GLOBEX
ELECTRONIC TRADING PLATFORM

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Growth of Electronic Tradingon GLOBEX Platform
1992 through 2002
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The S&P 500 is acapitalization-weighted index of 500 large, actively traded U.S. stocks.These stocks
are traded on the New York Stock Exchange, the American Stock Exchange and The Nasdaq Stock Market.
The primary calculator for the S&P 500 Index is Reuters.
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CME E-mini stock index futures:contract specications
E-MINI S&P 500 INDEX FUTURES & OPTIONS
CONTRACT HIGHLIGHTS*
* Pleaserefer to CMERulesfor ofcial specications.
** Go to www.cme.comfor moredetailson determining theSpecial Opening Quotation.
FUTURES OPTIONS ON FUTURES
Opening Date September 9, 1997
Ticker Symbols ES Calls: ES Puts: ES AON: EG
Contract Size $50 x S&P 500 Index futures price
5-point intervalsfor two nearest contracts,
Strike Prices N/ A 10-point intervals for deferred months
Minimum Price .25 index points = $12.50 per contract
Fluctuation (Tick) (Futures calendar spreads: .05 index points = $2.50 per contract)
Trading Hours Virtually 24-hour trading,
(C hicago Tim e) Sunday afternoon through Friday afternoon
Contract Months Mar, Jun, Sep, Dec All 12 calendar months
Trading can occur up to Mar, Jun, Sep, Dec
8:30 a.m. (Chicago time) sameas underlying futures contract.
on thethird Friday of the Other 8 months: thethird Friday
Last Day of Trading contract month of thecontract month
Position limits work in conjunction with
Position Limits existing S&P 500 position limits
Quarterly Futuresand OptionsSettlement Procedures: Cash settlement. All open positions at the close
of the nal trading day are settled in cash to the Special Opening Quotation** on Friday morning of the
S&P 500 Index.
Option Exercise:American Style. An option can be exercised until 7:00 p.m. (Chicago time) on any
business day the option is traded. An option that is in-the-money, and has not been exercised prior to the
termination of trading, shall be automatically exercisedunless contrary instructions have been delivered
to theClearing Houseby 7:00 p.m. on theday of determination of theFinal Settlement Price.
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The NASDAQ-100 is amodied capitalization-weighted index of 100 of the largest and most active
non-nancial, domestic stocks traded on TheNasdaq Stock Market.Theindex is computed and distributed
by TheNasdaq Stock Market.
E-MINI NASDAQ-100 INDEX FUTURES
FUTURES
Opening Date June21, 1999
Ticker Symbol NQ
Contract Size $20 x NASDAQ-100 Index futures price
Minimum Price .50 index points = $10 per contract
Fluctuation (Tick) (Futures calendar spreads: .05 index points = $1 per contract)
Trading Hours
(C hicago Tim e) Virtually 24-hour trading, Sunday afternoon through Friday afternoon
Contract Months March, June, September, December
Trading can occur up to 8:30 a.m. (Chicago time) on thethird Friday of the
Last Day of Trading contract month
Position Limits Position limits work in conjunction with existing NASDAQ-100 position limits
Quarterly Futuresand OptionsSettlement Procedures:Cash settlement. All open positions at the close of
the nal trading day are settled in cash to the Special Opening Quotation** on Friday morning of the
NASDAQ-100 Index, computed from ave-minute volume-weighted average of each component stocks
opening prices.
TheRussell 2000 isacapitalization-weighted index of approximately 2,000 actively traded, small-capitalization
U.S. stocks.Thesestocks aretraded on theNew York Stock Exchange, theAmerican Stock Exchangeand The
Nasdaq Stock Market.Theindex is computed and distributed by theFrank Russell Company.
E-MINI RUSSELL 2000 INDEX FUTURES
FUTURES
Opening Date October 24, 2001
Ticker Symbol ER2
Contract Size $100 x Russell 2000 Index futures price
Minimum Price .10 index points = $10 per contract
Fluctuation (Tick) (Futures calendar spreads: .05 index points = $5 per contract)
Trading Hours
Position Limits Position limits work in conjunction with existing Russell 2000 position limits
Quarterly Futuresand OptionsSettlement Procedures: Cash settlement. All open positions at theclose
of thenal trading day aresettled in cash to theSpecial Opening Quotation** on Friday morning of the
Russell 2000 Index.
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E-mini
TRADING EXAMPLES
TheS&P MidCap 400 is acapitalization-weighted index of 400 medium-cap, actively traded U.S. stocks.
These stocks are traded on the New York Stock Exchange, the American Stock Exchange and The Nasdaq
Stock Market.Theprimary calculator for theS&P MidCap 400 Index is Reuters.
E-MINI S&P MIDCAP 400 INDEX FUTURES
FUTURES
Opening Date January 28, 2002
Ticker Symbol EMD
Contract Size $100 x S&P MidCap 400 Index futures price
Minimum Price .10 index points = $10
Fluctuation (Tick) (Futures calendar spreads: .05 index points = $5 per contact)
Trading Hours
Position Limits Positions work in conjunction with S&P MidCap 400 position limits
Quarterly Futuresand OptionsSettlement Procedures:Cash settlement. All open positions at the close
of the nal trading day are settled in cash to the Special Opening Quotation** on Friday morning of the
S&P MidCap 400 Index.
Day 3/13/03 03/14/03 03/15/03 03/16/03
Index
Value 850 840 846 860
Point
Change -10 pts. +6 pts. +14 pts.
Profit/Loss 10 pts. x $50/pt. =-$500 6 pts. x $50/pt. =+$300 14 pts. x $50/pt. =+$700
Value of
Margin
Account $3,500 $3,000 $3,300 $4,000
Profit/Loss
700
600
500
400
300
200
100
0
-100
-200
-300
-400
-500
Index Value
865
860
855
850
846
840
835
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tradingexamples
Trading Example 1
POSITION TRADING USING THE E-MINI S&P 500
Supposethat on March 13,abullish trader decidesto go longoneE-mini S&P 500 (ES) at 850.00.
Performancebond: Approximately $3,500
At end of March 13, ESis trading at 850.00
Gain in position: 0.00
Valueof margin account: $3,500
At closenext day March 14, ESis trading at 840.00
Loss in position 10 pts. x $50/ pt. = $500
Variation margin (changein account): $500 debit
Valueof margin account: $3,000
At closetwo days later, March 15, ESis trading at 846.00
Gain in position from previous day = 6 pts. x $50/ pt. = $300
Variation margin (changein account): $300 credit
Valueof margin account = $3,300
At closeon March 16, trader sells ESat 860.00
Gain in position from previous day = 14 pts. x $50/ pt. = $700
Variation margin (changein account): $700 credit
Valueof margin account = $4,000
Position is now closed out.
Gain or losson entiretradeissum of variation margins= -$500 +$300 +$700 =+$500
Whiletheposition was closed out at aprot, if thetrader liquidated after day 1 or day 2, he/ she
would havehad aloss.
03/14/03 loss
-$500
03/13/03
03/15/03 profit
+$300
03/16/03 profit
+$700
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tradingexamples
26
tradingexamples
Supposean investor owns amutual fund or portfolio of stocks that is highly correlated with theS&P 500
compositeindex.Thecurrent valueof theportfolio is $100,000.
Investors Outlook Short term bearish looking for adeclineof at least 10%.
Investors Strategy
A Short Hedge Sell short two* E-mini S&P 500 futures contracts to hedgetheportfolio.
Current S&P 500 index
(cash) 900.00 pts.
Current E-mini S&P 500
(futures) 900.00 pts.
Note:Futurescontractscan and do tradeat apremiumor discount to thecash index dueto cost-of-carry factors. Asexpiration of the
futurescontract nears, thispremium/ discount will convergetoward zero. Asof early 2003, thefuturesareat aslight discount to cash.
In thisexample, however, thevaluesarethesamefor easeof comparison.
Supposethat two weekslater theS&P 500 Stock Index hasdeclined 10.2 %to 808.20.
Correspondingly, theinvestors portfolio has declined 10.5%.
Outcome December S&P 500 futures havesimilarly declined 10.0%to 810.00.
Initial valueof portfolio $100,000
Valueof portfolio after 10.2%decline $ 89,800
Prot/ lossonportfolio $ -10,200
Initial valueof E-mini S&P 500 futurescontract: $ 45,000 (900 x $50 =$45,000)
Valueof E-mini S&P 500 futuresafter 10%decline: $ 40,500 (810 x $50 =$40,500)
Prot/Loss Picture Gainonshorthedge +4,500 (45k- 40.5k)
(Theinvestor hasearned $4,500 on each contract by being ableto buy themback for lessthan hesold them.)
Total gain from futures Multiply $4,500 by 2 ($100k portfolio required two futures contracts) = $ 9,000
Trading Example 2
HEDGING A PORTFOLIO WITH
E-MINI S&P 500 STOCK INDEX FUTURES
* Each E-mini S&P 500 futuresisworth $45,000 when thefuturesindex isat 900 points(900 x $50 per pt. =$45,000).
Hence, two contractswould berequired to adequately hedgea$100,000 portfolio. Seeend of thisbrochurefor contract specs.
Loss on portfolio - $10,200
Gain from futures hedge +$ 9,000
Hedged Portfolio Overall prot/ loss - $ 1,200
Loss on portfolio -$ 10,200
Gain from futures hedge n/ a
Unhedged Portfolio Overall prot/ loss -$ 10,200
In this example, the hedge using stock index futures helped to protect the portfolio from adecline in the
market.Thedeclinein theinvestorsportfolio wasoffset by gainsfrom thepurchaseof two E-mini S&P 500
futures contracts at alower pricethan theinvestor sold them fortheshort hedge. As aresult, this investors
combined holdings showed only asmall loss despiteasignicant declinein themarket of 10%.
On theother hand, if themarket had advanced, theportfolios gains would havebeen offset by losses on
thehedgeof thetwo E-mini S&P 500 futures contracts. If this wereto occur, theinvestor would havehad to
consider removing his hedge (or managing his hedge) by buying back the short futures contracts, after
realizing his market opinion was wrong. By not offsetting his futures hedgeas soon as possible, theinvestor
risks not participating in the upside of the stock market.Thats because in an advancing market, ashort
hedgeusing stock index futures might prevent theinvestor from participating on theupside.
In summary, beforeusing E-mini futures as ahedging vehicle, theinvestor must consider:
Thesizeof theportfolio beinghedged.The value of the stock index futures contract or contracts being
used for thehedgemust besimilar to thesizeof theinvestors equity portfolio.
Thecorrelation of onesportfolio to thestock index product used for hedging.The stock index futures
product must track the stocks the investor has in his or her portfolio. For example, you would use
E-mini S&P 500 futures to hedgeaportfolio of large-cap stocks.
Performancebond requirementsfor thestock index futurescontract
THE USE OF LEVERAGE
29
tradingexamples
An investor is expecting alarge cash infusion due to sale of his business.
Hewishes to invest thecash proceeds of thesale(about $60,000) in high-tech
Situation stocks when thedeal closes in four-to-fivemonths.
Investor is very bullish near-term, especially on technology stocks. Lacks
Problem immediatecash to construct an equity portfolio to takeadvantageof his view.
Buy three E-mini NASDAQ-100 futures contracts (each contract worth
Investors Strategy approximately $20,000) as away to attempt to takeadvantageof anticipated
A long hedge technology stock growth.
Strategy is easy to execute.
Offers trader away to act on market opinion whilewaiting for cash to buy stocks.
Initial cash outlay (performance bond) much less than $60,000. (Likely to be
about 10%of that amount, depending on current performancebond requirements).
Advantages Less costly and moreefcient than buying abasket of stocks
If themarket rises beforetheinvestor receives the$60,000, thefutures would typically also rise, allowing
the investor to participate in the advance. Four to ve months later, the investor could purchase the stocks.
Thehigher pricethat hewould pay for thestocks would beoffset by theprots in thefutures contracts.
If the prices of the stocks (and the NASDAQ-100 Index) decline, however, the futures contracts would
typically also have declined in value. If the trader still wished to invest in atech stock portfolio, however,
the cost of doing so would now also be lower.
The investor, in effect, locks in astock price with his anticipatory long hedge in stock index futures,
and is able to participate in the market changes with less cost and more efciency than if he had purchased
abasket of tech stocks.
Trading Example 3
USING E-MINI NASDAQ-100 INDEX FUTURES
TO GAIN MARKET EXPOSURE
28
tradingexamples
Dollar prots and losses aresimilar, but thepercentageof prot or loss is higher when trading E-mini stock
index futures than trading ExchangeTraded Funds (also called index tracking stocks).
Takealook at thecomparisons below.
If
The NASDAQ-100 futures index is trading at 1100,
Then:
E-mini NASDAQ-100 futures NASDAQ-100 Index TrackingStock (QQQs)
Contract value= $22,000 800 shares of QQQ = $22,000
($20 x 1100 = $22,000) ($27.50/ share* x 800 = $22,000)
Performancebond $2,250** Margin $11,000
And if NASDAQ-100 moves up 50 index points to 1150, your dollar prot*** is
thesame thesame
prot is $1,000 prot is $1,000
($20 x 50 = $1,000) 1150 - 1100/ 40 = 1.25 x 800 = $1,000
but your percentage prot is
higher lower
$1,000 prot on $2,250 = 44% $1,000 prot on $11,000 = 9.1%
However, if NASDAQ-100 moves down 50 index points to 1050, your loss is
thesame thesame
loss is $1,000 loss is $1,000
($20 x -50 = $1,000) 1100 - 1050/ 40
($1.25 loss/ sharex 800 = $1,000)
but your percentage loss is
higher lower
$1,000 loss on $2,250 = 44% $1,000 loss on $11,000 = 9.1%
* QQQsarepriced to approximate1/ 40 thevalueof theNASDAQ-100 Index.
** Brokeragermsmay requirealarger initial performancebond. CMEinitial performanceand maintenancebondsmay also vary over time.
*** Protsand lossesdo not includecommissionsand fees.
30
tradingexamples
E-mini
COMPARING STOCK INDEX FUTURES AND
EXCHANGE TRADED FUNDS
33
comparingstock index futuresand exchangetraded funds
E-mini S&P 500 S&P 500 Depositary Receipts
Type of Investment Stock Index Futures (SPDRs) Index TrackingStock
Underlying Index S&P 500 S&P 500
Trading Method Electronic Floor/ ECN
24 Hour Trading Yes No
Short Selling Yes Yes
2002 Average
Daily $ Volume $22.1 billion $3.2 billion
Average Bid/Offer Spread* 3 basis points 69 basis points**
Ticker Symbol ES SPY
Where Traded CME Amex
/ NYSE
/ ECNs
E-mini capital requirement issignicantly lower
For example, if the S&P 500 Index is at 950, then:
OneE-mini S&P 500 Futures 500 shares of SPDRs
contract is valued at $47,500 arevalued at $47,500
($50/ point x 950 = $47,500) ($95/ share*** x 500 = $47,500)
but:
Capital requirement for trading Capital requirement for trading
oneE-mini S&P 500 contract is $3563 500 SPDRs shares is $23,750 in margin
(initial performancebond****) (half thetotal valueof shares)
E-MINI S&P 500 FUTURES VS.
STANDARD & POORS DEPOSITARY RECEIPTS (SPDRS
)
* Thesecan widen considerably during highly volatilemarkets. Source: ExchangeTradedFundsandE-mini StockIndexFuturesby David Lerman
** Plusa12-basis-point annual management fee.
*** SPDRsaredesigned to tradeat roughly 1/ 10 thelevel of theS&P 500 Index.
**** Initial and maintenanceperformancebondsmay vary over time, and brokersmay requirehigher margins.
E-mini
GETTING STARTED TRADING CME STOCK INDEX FUTURES
34
comparingstock index futuresand exchangetraded funds
E-mini NASDAQ-100 NASDAQ-100 Index
Type of Investment Stock Index Futures TrackingStock (QQQ)
Underlying Index NASDAQ-100 NASDAQ-100
Trading Method Electronic Floor/ ECN
24 Hour Trading Yes No
Short Selling Yes Yes
2002 Average
Daily $ Volume $4.8 billion $2.5 billion
Average Bid/Ask Spread* 49 basis points 718 basis points**
Ticker Symbol NQ QQQ
Where Traded CME Amex / NYSE / ECNs
E-mini capital requirement issignicantly lower
For example, if the NASDAQ-100 Index is at 1100, then:
OneE-mini NASDAQ-100 futures 800 shares of QQQ
contract is valued at $22,000 arevalued at $22,000
($20/ point x 1100 = $22,000) ($27.50/ share*** x 800 = $22,000)
Capital requirement for VS. Capital requirement for
Trading oneE-mini NASDAQ-100 is $2,250 Trading 800 QQQ shares is
(initial performancebond****) $11,000 in margin
(half thetotal valueof shares)
E-MINI NASDAQ-100 FUTURES VS.
NASDAQ-100 INDEX TRACKING STOCK (QQQS)
* Thesecan widen considerably during highly volatilemarkets. Source: ExchangeTradedFundsandE-mini StockIndexFuturesby David Lerman
** Plusa20-basis-point annual management fee.
*** QQQsarepriced to approximate1/ 40 thevalueof theNASDAQ-100 Index.
**** Initial and maintenanceperformancebondsmay vary over time, and brokersmay requirehigher margins.
37
gettingstarted tradingCME stock index futures
Do You HaveaStrategy?
Are you atechnical analyst? A momentum trader?
Do you focus on market fundamentals? Whatever
your approach, you can adapt your existing trading
styleto futures.
Do You HaveaPlan to ManageYour Money?
As with any typeof trading, amoney management
planand thedisciplineto follow itareessential to
thesuccessful trading of theseproducts.
ARE FUTURES RIGHT FOR YOU?
Look for aGood Match
Futuresand optionson futurescontractsarebought
and sold through futuresbrokeragerms, whilestocks
arebought and sold through stock brokeragerms.
If your existing broker doesnt offer trading in futures,
you will need to open an account with aSeries 3
licensed commodities brokeragerepresentative.
You may nd agood futuresbroker on thereference
of afriend or co-worker currently using the futures
markets; or, abroker might call you directly and
introduce him/ herself. But if you dont have
someonewho can help, you can start your search by
going to theFind aBroker section of theCME
Web site at www. cme.com.You can also check the
National Futures Associations Web site
(www.nfa.futures.org).
Know Your TradingObjectives
Asyou talk with prospectivefuturesbrokers, let them
know what your objectives arefor getting into the
market. Is it strictly to try to take advantage of price
uctuations? Do you want to hedge an exposure
FINDING AND WORKING WITH A FUTURES BROKER
E-mini
ABOUT CHICAGO MERCANTILE EXCHANGE
38
gettingstarted tradingCME stock index futures
you arecarrying elsewherein your portfolio? Will all
your trading be on your PC, or will you want to
phone in trades when youre away from the screen?
A clear understanding of your trading needs and
approach up front will help your broker serve you
most effectively.
Your broker represents YOUheor shewill enter
your order as you instruct and report theexecution
priceback to you promptly. In addition, you may
want your broker to give you advice and help on
various aspects of themarket and to simply be
there when you havequestions.
Get theTrainingYou Need
Be sure to take advantage of any training or other
assistance your brokerage rm providesespecially
if you will be using an electronic trading system
provided by your broker. Before making live trades
with theseproducts, itsagood ideato practicerst
with virtual trades on asimulated trading program.
TradingWithout Broker Assistance
If you reach apoint where you feel comfortable
with your own trading decisions, thereareagrowing
number of Internet-based order routing systems
available through futures brokerage rms.You will
need to speak with abroker or other qualied
person before opening an online account and you
will need acertain degreeof knowledgeof futures
or experiencetrading futures.
All brokers in the U.S. must pass qualifying
examinations and receive a license before they
are permitted to handle customer orders.You
can check on theregistration status of your broker,
or Associated Person, by calling theNational
Futures Association at 312-781-1410.
Sign Account Papers
Onceyouvechosen abroker, you would then open
a trading account.You will need to meet the
nancial requirements set by your particular broker,
and will need to sign arisk disclosurestatement
indicating that you understand therisks involved in
futures and options trading.You may also need to
sign aperformancebond agreement (astatement
that bindsyou to pay for any lossesincurred in the
course of trading) and afutures account agreement
outlining how the account is to be handled by
thebroker.
Deposit PerformanceBond
Beforeyou open an account to tradeCME index
futures or options, you must deposit cash or certain
securities with your broker. CME establishes
minimum initial and maintenance performance
bond levelsfor all productstraded at theExchange;
your brokers requirements may be higher. (Buyers
of options pay thefull priceof theoption and are
not subject to performancebond requirements.)
CMEsnancial safeguard systemprovidesaunique
blend of risk management and nancial surveillance
techniques designed for the protection of its
customers.Thekeystoneof this system is theability
to detect unsound nancial practices, backed by
thenancial depth of its clearing members and its
special Trust Fund.This combination provides
unparalleled safeguardsfor theprotection and benet
of all users of CME markets.
In the 100-year plus history of CME and its
predecessor organizations, therehas never been a
failureby aclearing member to pay settlement
variation to the Clearing House; there has never
been a failure by a clearing member to meet
a performance bond call; there has never been a
failureby aclearing member to meet itsdelivery
obligations; and, most importantly, there has never
been afailureof aclearing member resulting in
aloss of customer funds.
Thisnancial safeguard systemhasbeen remarkably
successful in periods of tremendous volatility in the
nancial markets, and CME continuously works to
improveand strengthen it.
41
about Chicago MercantileExchange
CME provides and regulates amarketplacefor trading
futures and options on futures, similar to the
roles theNew York Stock Exchangeand theNational
Association of Securities Dealers (NASD) play for
stocks. CME clears, settles and guarantees all matched
transactionsin CMEcontractsoccurring electronically
or through its oor facilities. Chicago Mercantile
Exchangeis registered with theSEC as afor-prot
shareholder corporation, and our markets are
primarily regulated by the CFTC along with other
U.S. governmental bodies.
On December 6, 2002, CME becametherst publicly
traded nancial exchangein theUnited States.
CHICAGO MERCANTILE EXCHANGE AND ITS ROLE
FINANCIAL SAFEGUARDS
43
42
OptionsVolatility &Pricing
Sheldon Natenberg, 1994
ExchangeTradedFundsandE-mini Stock IndexFutures
David Lerman, 2001
Wiley and Sons
Chicago MercantileExchange
A resource for complete futures products and
trading information including publications, online
courses, simulated trading, contract and price
information.
www.cme.com
WHERE CAN YOU LEARN MORE?
1898
Founding of the Chicago Butter and Egg Board,
which in 1919 becametheChicago Mercantile
Exchange(CME).Trading focused on avariety of
agricultural markets.
1972
CME introduces theworlds rst nancial futures
foreign currencies. This innovation transforms
global nance, by offering thenancial community
thesameopportunitiesfor risk management that
agribusiness had used for decades.
1982
CME lists the rst successful stock index futures
contracttheStandard & Poors 500, thebenchmark
of theU.S. equity market.
1992
CME launches rst global after hours electronic
trading systemtheGLOBEX electronic platform.
1997
CME introduces rst electronic mini contract
E-mini S&P 500 futures. In less than threeyears, it
becomes CMEs third highest volumecontract.
1998
CMElaunchesthesecond generation of theGLOBEX
electronic trading platform.The new system
is astate-of-the-art, open and exiblesystem that
enables further rapid expansion and brings
electronic futures trading to awholenew level.
1999
CME launches theE-mini NASDAQ-100 contract. It
becomes oneof CMEs two fastest growing products
ever, along with theE-mini S&P 500.
2000
CME is the rst major U.S. nancial exchange to
become afor-prot, shareholder corporation.
2001
E-mini S&P 500 volumedoubles over previous
year. E-mini NASDAQ-100 volumequadruples over
previous year.
Launch of E-mini Russell 2000 in October.
2002
Launch of E-mini S&P MidCap 400 in January.
E-mini futures trading volumeexceeds onemillion
contracts for therst timein history.
On December 6, 2002, CME becametherst publicly
traded nancial exchangein theUnited States.
CME HISTORY OF INNOVATION
Standard&Poors
, S&P500
, S&P, S&PMidCap400, Standard&PoorsDepositaryReceipts
, andSPDR
areregisteredtrademarksof TheMcGraw-Hill
Companies, Inc. andhavebeen licensedbyChicago MercantileExchangeInc. for thetradingof futuresproducts.Theseproductsarenot sponsored, endorsed, sold
or promotedbyS&P, adivision of TheMcGraw-Hill Companies, Inc., andS&Pmakesno representation regardingtheadvisabilityof investingin them.
Thesponsor of theNASDAQ-100 Trust
SM
, aunit investment trust, isNASDAQ Financial Product Services, Inc., awhollyownedsubsidiaryof TheNasdaqStock
Market, Inc. (NASDAQ, collectivelywith itsafliatesexcept NASDAQ Investment Product Services, Inc., theCorporations). ALPSDistributorsInc., aregistered
broker-dealer, isdistributor for theTrust. Investment returnsandprincipal valuewill uctuateso that an investorsshares, when redeemedor sold, maybeworth
moreor lessthan theoriginal cost. NASDAQ andrelatedmarksaretrademarksor servicemarksof NASDAQ andhavebeen licensedfor usefor certain purposes
byNASDAQ Investment Product Services, Inc.TheNASDAQ-100 IndexiscomposedandcalculatedbyNASDAQ without regardto NASDAQ-100 IndexTracking
SM
Stock.TheCorporationsmakeno warranty, expressor implied, andbear no liabilitywith respect to NASDAQ-100 IndexTrackingStock.TheCorporationsmakeno
warranty, expressor implied, andbear no liabilitywith respect to theNASDAQ-100 Index, itsuse, or anydataincludedtherein.
Russell 2000
isatrademark andservicemark of theFrank Russell Company, usedunder license.

Amexisaregisteredtrademark of theAmerican Stock ExchangeLLC.
NYSEisaregisteredtrademark of theNew York Stock Exchange.
TheGlobeLogo, CHICAGO MERCANTILEEXCHANGE
, GLOBEX
, CME
andE-mini
TM
aretrademarksof Chicago MercantileExchangeInc, registeredin theU.S.
Patent andTrademark Ofce. All other trademarksarethepropertyof their respectiveowners.
Theinformation within thisbrochurehasbeen compiledbyChicago MercantileExchangeInc. (CME) for general purposesonly. Although everyattempt hasbeen
madeto ensuretheaccuracyof theinformation, CMEassumesno responsibilityfor anyerrorsor omissions. Additionally, all examplesin thisbrochureare
hypothetical situations, usedfor explanation purposesonly, andshouldnot beconsideredinvestment adviceor theresultsof actual market experience.
All matterspertainingto rulesandspecication herein aremadesubject to andaresupersededbyofcial CMErules. Current CMErulesshouldbeconsultedin all
casesconcerningcontract specications.
Copyright 2003 Chicago MercantileExchangeInc.
44
quick reference
45
quick reference
* Contract valueuctuatesdaily with market
** H =March, M =June, U =September, Z=December
*** ALL PERFORMANCEBONDSSUBJECTTO CHANGE, AND BROKERSMAY REQUIREHIGHER MARGINS
E-MINI STOCK INDEX FUTURES COMPLEX
CONTRACT SPECIFICATIONS
Trading may occur up to 8:30 a.m. Chicago timeon thesedates.
Expiration Dates March 21, 2003
June20, 2003
September 19, 2003
December 19, 2003
E-mini E-mini E-mini E-mini
S&P 500 NASDAQ-100 Russell 2000 S&P MidCap 400
Ticker Symbol ES NQ ER2 EMD
$50 x E-mini $20 x E-mini $100 x E-mini $100 x E-mini
S&P 500 NASDAQ-100 Russell 2000 MidCap 400
Contract Size* $47,500 $22,000 $40,000 $45,000
Minimum Price .25 futures index .50 futures index .10 futures index .10 futures index
Fluctuation (Tick) points =$12.50 points = $10.00 points or $10.00 points or $10.00
Trading Hours Nearly 24-hours, Sunday afternoon through Friday afternoon
Contract Months** H, M, U, Z
Last Day of Trading 8:30 a.m. 3rd Friday of contract month
Performance
Bond Margin*** $3,563 $2,250 $3,000 $2,625
Chicago
Chicago MercantileExchangeInc.
30 South Wacker Drive
Chicago, Illinois 60606-7499
1 800 331-3332
E-mail: info@cme.com
London
PinnacleHouse
23-26 St. Dunstans Hill
London EC3R 8HN England
+44 (0) 20 7623 2550
FAX: +44 (0) 20 7623 2565
E-mail: cmeeurope@cme.com
Tokyo
Level 16, ShiroyamaJT Mori Building
4-3-1 Toranomon, Minato-ku
Tokyo 105-6016 Japan
+81-3-5403-4828
FAX: +81-3-5403-4646
Internet
www.cme.com
IX50/ 10M/ 0203

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STOCK INDEX FUTURES

ELECTRONIC TRADING PLATFORM

, S&P, S&PMidCap400, Standard&PoorsDepositaryReceipts

isatrademark andservicemark of theFrank Russell Company, usedunder license.

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