Now we move forward to session of stock price index, i.e. the average value of a stock price in certain a stock option. Stock index could also functionated as an indicator of market trends, which means the movement of the index describes the market conditions at any period, whether the market is active or lethargic excited uncertain.
By observing the stock index, we can get an idea whether the prices is rising, falling, or stable. For example, if the index value increased from 100 to 120, then we can assume that the average share price increased 20%.
Traders often make the stock index as a reference in carrying out the transaction. Interestingly, the movement of the stock index moves up and down within a very short time. Minutes even seconds is the main arena for derivation to higher index, this also caused the stock price moves at the same count. Means we can make profit opportunities in minutes count as well!
The offered stock index futures are futures contracts which is “derived” from the value of the stock index, see the following example:
• Hang Seng, the Hong Kong stock index of the Stock Exchange
• Nikkei 225, an index of shares from Tokyo Stock Exchange
• KOSPI 200, an index of stocks from exchanges in South Korea
• Nasdaq, Dow Jones and S & P 500, an index of U.S. stock-index
b. Futures contract
Contracts stock index is included in futures contracts, which means it has ‘expired’. Each stock index has its own period called the ‘contract month’. Catch the details
- Hang Seng, ‘contract month’ is per one month. So there’s Hang Seng ‘contract month’ in January, February, March, April, and so on until December. The contract will expire (expired) usually three days before the month ends.
- Nikkei, Kospi, Nasdaq, Dow Jones and S&P 500, the ‘contract month’ is a three contract month. Contract months are: March, June, September and December.
It has a several different from continuous contract, we must close our open transaction if the contract is have been run off to the relevant stock index, specially when the contract month was expired (expired). But what if we transact in periodic contract? We just adjust our transactions (rollover) with the next contract month.
For every transactions which occurance the overnight will not take “swap” for futures contracts and periodic.