Customer Advantage of trading CBOT Dow - Daniels Trading.pdf by handongqp

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									Customer Advantage of trading CBOT® Dow Jones Industrial AverageSM and CBOT mini-sized DowSM Futures

CBOT Dow futures and mini-sized Dow futures offer traders flexible opportunities to trade and manage
market risk. Electronic access, highly liquid markets, low margin requirements, and beneficial tax treatment
have combined to establish CBOT Dow futures products as outstanding trading and hedging instruments for
equities and futures traders alike.

       Broad Market Appeal: Interest in U.S. equity indexes and the CBOT Dow and mini-sized Dow
       futures contracts has increased dramatically. The Dow is the world’s most followed stock index, with
       combined volume in CBOT Dow and mini-sized Dow futures exceeding 100,000 contracts, or over $6.2
       billion trading daily.

       Simplified Benchmarking: The Dow is a price-weighted index of 30 blue chip U.S. companies,
       representing nine economic sectors. The leadership position of the component Dow stocks results in an
       extremely high correlation of the DJIA to broader U.S. indexes, such as the S&P500® (currently a 95%
       50-day rolling correlation). CBOT Dow and mini-sized Dow futures, therefore, provide opportunities
       for traders to gain market exposure and manage risk between correlated equity index futures, underlying
       stocks, stock baskets, and single stock futures.

       Transparency, Speed & Efficiency: The introduction of the mini-sized Dow future ($5 multiplier) has
       expanded the universe of equity index traders competing on a level playing field. The mini-sized Dow
       and mini-sized Dow options are 100% electronically traded, have continuous two-sided quotes, and are
       available nearly 24 hours a day (7:15pm – 4pm CST, Sunday-Friday). Competition has increased
       liquidity in the mini-sized Dow futures, with open interest exceeding 85,000 contracts. The smaller $5
       tick size allows for greater flexibility when managing portfolio risk.

       The CBOT Dow future ($10 multiplier) provides traders with twice as much dollar value exposure as the
       mini-sized Dow and e-mini S&P500 futures. The $10 Dow futures and options add further execution
       flexibility as they are traded on a hybrid floor / electronic platform (open outcry 7:20am-3:15pm
       Monday-Friday; electronic 7:15pm-7am Sunday-Friday).

       Favorable margin: The initial margin to carry a Dow and mini-sized Dow futures contract overnight is
       $5,000/$2,500 respectively, or 5% of the underlying contract value. Intraday margins can be
       significantly less. In contrast, exchange traded funds require margins of 50% of the underlying contract
       value (Dow $10/$5 contract equivalent DIAMONDS® ETF margin is $52,500/$26,250). Clearly, Dow
       index futures provide more leverage at lower cost than competitive offerings.

       To further enhance margin efficiencies, the CBOT and CME have established a common clearing link,
       whereby intermarket spread trades across the two exchanges are given significant reductions in
       performance bond requirements. For example, the popular 1:1 e-mini S&P vs. mini-sized Dow futures
       spread enjoys a 95% spread credit from $6,500 to $325.

  The information in this publication is taken from sources believed to be reliable. However, it is intended for purposes of information and
  education only and is not guaranteed by the Chicago Board of Trade as to accuracy, completeness, nor any trading result, and does not
  constitute trading advice or constitute a solicitation of the purchase or sale of any futures or options. Margin requirements are subject to
  change. The Rules and Regulations of the Chicago Board of Trade should be consulted as the authoritative source on all current contract
  specifications.

   “Dow Jones,” “The Dow,””Dow Jones Industrial Average,” and “DJIA” are service marks of Dow Jones & Company, Inc and have been
  licensed for use for certain purposes by The Board of Trade and the City of Chicago (CBOT). The CBOT’s futures and futures-options
  contracts based on the Dow Jones Industrial Average are not sponsored, endorsed, sold, or promoted by Dow Jones, and Dow Jones makes no
  representation regarding the advisability of trading in such products.
                                                                                              CBOT mini-sized Dow (YM) - Average Daily Volume
        100,000


                       90,000


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                                                                                                           CBOT mini-sized Dow vs. E-mini S&P 500

                       100%                                                                                                                                                                                                                                                                                                                              80000
                                         50-day Correlation

                        95%                                                                                                                                                                                                                                                                                                                              75000

                                                                                                                                                                                                                                                                                                                                                         70000
                        90%
  50-Day Correlation




                                                                                                                                                                                                                                                                                                                                                         65000




                                                                                                                                                                                                                                                                                                                                                                   $ Value Contract
                        85%
                                                                                                                                                                                                                                                                                              --------- 1 ES
                                                                                                                                                                                                                                                                                                                                                         60000
                        80%
                                                                                                                                                                                                                                                                                              --------- 1 YM
                                                                                                                                                                                                                                                                                                                                                         55000
                        75%
                                                                                                                                                                                                                                                                                                                                                         50000

                        70%
                                                                                                                                                                                                                                                                                                                                                         45000

                        65%                                                                                                                                                                                                                                                                                                                              40000

                        60%                                                                                                                                                                                                                                                                                                                              35000
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Fair Value Calculation
Fair Value is the theoretical futures price given the current underlying index level, dividends, days to
expiration, and interest rates. Price discrepancies above or below fair value vs. the cash index price
represent arbitrage opportunities to return the market to fair value.

  Calculation:                                                                                             FV = Cash index [1+r * (dtx/365)] – Dividends
  As of 4/7/04                                                                                             FV = 10,489.26 [1+.0115 * (73/365)] – 45.17
                                                                                                           FV = 10,468.21 or -21.05

To learn more about CBOT Dow Complex products, please visit www.cbot.com/dow.

								
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