CME Group (Chicago Mercantile Exchange) took another step in 2019 in making financial products available to retail investors. That year, it introduced Micro Futures referenced to stock indices and other products. And without a doubt, the most popular and most negotiated was the Micro E-Mini SP500.
If the presence of the popular E-mini futures already eliminated entry barriers for small operators to access the derivatives markets, the entry into play of the Micro made it even easier for new traders to participate.
A product comes into play that allows the entry of retailers who, due to their economic level, only had access to derivative products that, in most cases, came from market makers with interests that conflicted with those of the operator itself.
What’s New About Micro-Contracts?
The main differentiating characteristic is the multiplier or number of dollars of loss/gain assumed in the account per point the underlying moves. In the old E-mini futures, this $50 with the introduction of the micro is now allowed to trade with a multiplier of only $5.
You have to be objective and think coldly, and although the portfolios and positions have to be adjusted to the size of the account, learning a profession that requires experience and practice, such as trading, makes more sense to do it facing the inevitable losses of the beginnings eroding our capital to a minimum, regardless of the size of our account.
What Are Micro-SP500 Option Contracts?
Micro S&P options are mini versions of the more extensive Standard & Poor’s 500 index. The index includes 500 stocks from 11 sectors and is a barometer for the U.S. stock market. By trading micro S&P options, you can gain exposure to this large pool of companies without investing in all 500 stocks individually. This makes it easier and less risky than traditional stock trading while giving you access to potential profits associated with certain stocks or sectors.
In this sense, the product was well received and began trading with an impressive volume almost from its inception. Such was the success that the CME’s European counterpart, EUREX, took little time to release the corresponding Micro versions of the European trading products, such as Micro Eurex Futures.
Both new and experienced traders began trading this asset; the latter could now carry out longer-term operations, of the swing trading type, with other more comfortable stop loss levels typical of this operation.
The need for new hedging instruments related to the product arises when it is given such acceptance, and it took little time for CME to take out the options on this product.
Micro E-miniSP futures options contracts are a type of options contract that is based on the Standard & Poor’s 500 (S&P 500) stock index, to which one party (the buyer) has the right, but not the obligation, to buy or sell an underlying asset (such as a stock or index) at a predetermined price (the strike price) within a specified time frame (the expiration date).
It is undoubtedly very advantageous to trade the entire universe of options and futures and the combination of both with reduced leverage and with little aggressive exposures, especially in startup accounts.
How Do They Work?
To trade micro S&P options, you will need an online broker that offers these products. Most online brokers offer micro S&P option contracts in units of one-tenth (1/10th) of full-sized contracts, so you can buy or sell up to 10 times more shares than if you were buying or selling a full contract size.
Each contract also has an expiration date (typically two weeks after purchase) when it will expire, and your position will either be profitable or not, depending on where the underlying asset’s price (in this case, the S&P 500 index) is at that time.
It’s important to note that trading micro S&P options is still risky; however, with careful research and analysis, traders can minimise their risk while taking advantage of potential gains associated with these products.
Another great advantage is the ability to trade these options outside RTH hours. We have 24 hours from Monday to Friday to open and close positions. Be careful because depending on the time, it is sometimes difficult to cross orders due to low liquidity, and the executions may be better.
In itself, this last feature is very worthwhile. We have to think that the fact that $SPY, $SPX, $XSP options cannot be traded overnight can bring unpleasant surprises to our portfolio due to events that occur after hours.
With the options on Futures and the corresponding adjustment, we can cover our portfolio by preventing the damage from increasing if necessary.
Without a doubt, and with all these characteristics, we have within our reach a product that allows the use of complex strategies with options, exposing minimal capital.
Allowing even more than one contract to be opened, making position management even more flexible, exposing very affordable risks and, above all, an overnight hedging instrument that can get us out of trouble in the event of unexpected and unwanted events at times outside of regular hours.
Where to invest with micro-SP500 options?
Investing in a product as specialized as these contracts is not an easy task, so here are some tips for investing through micro-options-SP500 contracts:
Professional Broker: First, you should look for a broker with access to CME Group futures and options.
Real-time trading: Undoubtedly, an essential aspect is a possibility of having access to information in real-time. The good news is that CME Group provides real-time access to such micro options.
Multiplatform: A broker should be able to offer a good service in the set of commercial platforms for accessing the different investment products, at least with web/pc and mobile phones.
Low commissions: Finally, if you are going to trade when you trade with products that may include a high degree of leverage, it is essential to have access to them with the lowest possible commissions. In this way, the higher the risk limit you can tolerate.
Trading micro S&P options could be an excellent way for traders looking to invest to start building wealth without risking too much money upfront. With careful research and analysis, investors can minimize their risks while taking advantage of potential profits associated with certain stocks or sectors included in the index.
Micro S&P options may not be suitable for everyone, so it’s important to do your own due diligence before making any investments or trades. Now that you know what they are and how they work, why not try them today?