From the July/August 2013 issue of Futures Magazine • Subscribe!

Getting started with mini and micro contracts

In addition to mini contracts on stock index futures, exchanges offer mini and even micro contracts on many commodities, such as oil, gold and soybeans. The difference in contract size between the full-size and mini contracts varies based on the commodity. For example, a full-size corn contract at CME Group is for 5,000 bushels and the mini is for 1,000 bushels, whereas a full-size gold contract is for 100 troy ounces, the mini is for 50 troy ounces and the micro is for 10 troy ounces.

Some traders that intend to take delivery eventually, but don’t have the capital to do so immediately, will use mini contracts to build a position that they later can roll into a full-size contract to take delivery. Looking at gold again, this means a trader can buy a couple micro contracts to gain exposure to gold and add to his positon later until it is large enough to roll into a full-size contract to take delivery.

On the stock options side, mini option contracts were launched in March in some of the most popular equities, including Apple, Google, Amazon, GLD and SPY, and have an underlying of 10 shares rather than the 100 shares of a full-size contract. 

Kinahan says the launch of these products allows someone who has never traded an option before to more easily gain experience because they still have the same mechanics as their full-size counterparts. “What’s beautiful about the minis is they are a completely separate class of product because they let people with smaller amounts of capital play in some of the bigger assets, like the Apples of the world that everybody wants to trade. They allow you to do so in a risk-defined environment with less capital,” he says.

Friedman does not see such a need for the mini options contracts because options already offer a range of products to manage your risk. “My attitude is when talking about options, sometimes you don’t need a mini option because you can get a little further out-of-the-money with a put or call or different strategies to reduce your exposure. Depending how you manage your exposure, you might not need a mini option,” he says.

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