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“Smaller-Bite” Micro E-Minis Offer Handy Teammate for Earnings Season

Learn about micro e-mini futures contracts and how they could help your portfolio play hard during earnings season.

https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Baseball, mini: trading micro e-mini futures
5 min read
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Key Takeaways

  • Micro e-mini futures based on the Nasdaq-100 and S&P 500 are 1/10th the size of traditional e-mini contracts
  • The Nasdaq-100 micro e-mini contract is highly correlated with some of the largest tech companies

  • Micro e-minis can offer traders flexibility during earnings season without taking positions in actual shares

Quarterly earnings reports come fast and furious every three months. Baseball and football fans have it easy—at least they have a few months every year to catch their breath. But for investors and traders? There really is no off-season. So how can you keep your portfolio in “game shape” year-round? Micro e-mini futures based on the Nasdaq-100 and S&P 500 can be a helpful teammate.

First, the Basics

Micro e-mini futures from CME Group (CME) can help retail traders and investors gain flexibility during earnings season. They offer exposure to tech companies or other sectors without taking positions in specific shares. At 1/10th the size of CME Group’s traditional e-mini contracts, micros also offer “smaller-bite,” cost-effective opportunities for newcomers to the futures market.

Smaller products like the micro e-minis can be less expensive to trade. For retail investors and traders, micros can be handy if you’re seeking futures exposure but prefer to avoid the pricier e-mini contract.

Micro e-mini Nasdaq-100 futures, which are linked to the largest non-financial companies in the Nasdaq stock market, have a high correlation with some of the heavyweights in the tech sector. That means they can be considered a proxy for big tech companies such as Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), and Microsoft (MSFT), whose shares sometimes move broader sectors or markets.

Micros Getting Some Big Love

Launched by Chicago-based CME Group in May 2019, micro e-mini futures quickly found a receptive audience. The contracts’ trading volume so far in 2020 was up nearly fivefold compared to last year. The strong trading partly reflects demand from smaller investors and traders, as a decade-long U.S. bull market had made traditional equity benchmarks increasingly expensive. 

During the first six months of 2020, trading in micro e-mini futures based on the S&P 500, Nasdaq-100, and Russell 2000 indices averaged nearly 1.53 million contracts a day, according to CME Group data. Compare that to the three contracts’ combined daily average of 316,795 in 2019. 

Micro e-mini S&P 500 futures traded the most, with an average 851,928 contracts changing hands each day during the first six months of 2020. That’s followed by the micro Nasdaq-100 at 579,305 contracts a day, then the micro Russell 2000 at 96,408. By comparison, the e-mini S&P 500 futures, one of the world’s most actively traded futures contracts, averaged 2.31 million contracts a day during the same period.

For beginner futures traders who just want to “test the waters,” as well as market veterans, micros provide the potential to minimize risk during earnings season while utilizing a relatively small amount of capital.

Micro Specs and Access

As of July 2020, the maintenance margin for one micro e-mini Nasdaq futures contract was $1,500, compared to $15,000 for the e-mini Nasdaq contract. At $2, the “multiplier” used to determine notional value for micro e-minis is also 1/10th the size of the e-mini Nasdaq contract.

For example, if the Nasdaq-100 is trading at 10,000, one micro e-mini Nasdaq-100 contract (/MNQ) would be 10,000 times the $2 multiplier for a notional value of $20,000. The notional value of the e-mini Nasdaq-100 (/NQ) would be $200,000 (10,000 times the $20 multiplier).

For night owls and early birds, there are a few other potential benefits. Micro e-minis, like many futures contracts, are available to trade virtually 24 hours a day, six days a week. That aspect could be particularly handy during earnings season, because most companies report quarterly results before or after regular U.S. equity market hours.

Ready to learn more? Here’s a short video on micro e-mini futures contracts:

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Key Takeaways

  • Micro e-mini futures based on the Nasdaq-100 and S&P 500 are 1/10th the size of traditional e-mini contracts
  • The Nasdaq-100 micro e-mini contract is highly correlated with some of the largest tech companies

  • Micro e-minis can offer traders flexibility during earnings season without taking positions in actual shares

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