EMINI S&P TRADING
PROFIT POTENTIAL
Volatility is the source of potential profit, as well as potential loss, for the futures day trader and measuring
it is done with reference to the Daily Range Value calculated by multiplying the day's high-low range of a particular futures contract
by the point value of that contract. For the E-mini® S&P 500® futures, the daily high-low range is multiplied
by $50, the contract's multiplier. The result is the theoretical maximum profit or loss for one contract
possible during the day. For example, a day's trading range of 22.50 points represents a Daily Range Value
of $1125, the per-contract maximum that could be earned (or lost) by buying an E-mini S&P 500 futures at one price extreme and selling at the other.
From June 2008 to June 2010, the Daily Range Value of the E-mini S&P 500 futures fluctuated between a minimum of just $125 and a maximum of $5775 with
the average being $1169 per contract. The histogram
(at right) is more revealing: about half of the days had a range value of over $1000 per contract
with 12% of the days exceeding $2000.
No trader can or should expect to buy at the low and sell at the high. For that reason, the Daily Range Value
represents a maximum theoretical measure. In practice, though, a day trader can strive to capture some percentage of the
Daily Range Value as target performance for their trading plan. If, for example, a trader could capture just half of the
price movement, then based on the histogram, one out of every two trading days in the E-mini S&P 500 futures would still provide the trader with the
potential to earn $500 or more.
Apart from showing profit potential, the histogram is also useful in quantizing the expected frequency of "spectacular days" and the opposite, "down days"
in the E-mini S&P 500 futures market.
Spectacular days - when the Daily Range Value surpasses $3500 - occur with more likelihood than one might expect
so any trading plan should at least provide the opportunity for the day trader to stay in the market and capture these
large price swings.
The number of down days, when trading is too quiet to generate much if any opportunity, depends in part on the criteria for initiating a trade as detailed in
the trading plan. For example, a day trading plan that requires a predetermined movement away from a local high or low prior to
establishing a trade will require a sustained price movement to trigger a trade. Depending upon the size of the requisite movement,
days having a Daily Range Value below $500 may not often represent a profit opportunity and, based on the histogram, this may occur
one in every five trading days. As another example, a trader who plans to capture
only the relatively large movements in the E-mini S&P 500, say beyond a $2500 Daily Range Value, should realize that such movements
have in the recent past occurred only about 7% of the time. |
Show me the Money. A quick glance at the histogram above shows why the E-mini S&P 500 is so popular among day traders: there is plenty of
profit potential, more so than with most other futures contracts. There are even very active days
that provide the potential to earn thousands of dollars over just one trading day. |
This paper, prepared by the Research and Product Development division of CME Group, compares and contrasts the benefits of
trading E-mini stock index futures and Exchange Traded Funds (ETFs). An ETF represents ownership in a unit investment trust patterned after an
underlying index, and is a mutual fund that is traded much like any other
fund. Unlike most mutual funds, ETFs can be bought or sold throughout
the trading day, not just at the closing price of the day. (Adobe Acrobat required.)
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CME E-mini®, CME®, E-mini® and Globex®. The following are trademarks of The McGraw-Hill Companies: S&P®, S&P 500®.