mam5 workshops brought to you by the jse. make a million 5 single stock futures (ssfs) trading of...

MAM5 Workshops brought to you by the JSE


• Make a Million 5

• Single Stock Futures (SSFs)

• Trading of SSFs in MAM5

• SSF Trading Strategies

• Other cost-effective trading instruments– IDXs– ETFs


Hermann Kostens - 2008

Willie Koen - 2006 Leon vd Westhuizen - 2005

Hendrik v Niekerk - 2007


• 3 month online trading competition

• 5th year that we will be giving away R1 million

• MAM 1 to 3 : share trading competitions

• MAM4 : Single Stock Futures (SSFs)

• MAM4 in 2008 - 300 entries

• The best odds of winning R1 million in the country


1. Attend the workshop (done!)

2. Register + Deposit R10,000

3. Explore www.psgonline.co.za

4. Trade SSFs on the Top 40 shares + ETFs

5. Follow the leaderboard on www.moneyweb.co.za

6. Listen to Moneyweb on RSG, SAFM and Lotus

7. Sell out to cash by 27 November 2009

8. Visit Moneyweb for the results presentation in early December 2009


• Cost-effective

• Benefits of gearing therefore, requires less initial capital investment

o Within 2 months in MAM4 leader : R9 000 to R189 000 • BUT SSFs are also more risky than shares

o Last 2 weeks of MAM4 : Lost R160 000o Can lose the R10,000 initial deposit

• Use the available tools to mitigate risko Price watch to monitor prices on your behalfo Stop-loss facility to close out positions


A Definition : SSFs Explained

•SSFs are contracts entered into between 2 parties, where 1 party commits to buy a set quantity of stock and 1 party agrees to sell a set quantity of stock at a specified future date.

•This creates the right for the buyer to take delivery of that stock on the date of the contract’s expiry, i.e. the buyer doesn’t purchase the stock but rather a ‘deposit’, known as the initial margin is made and used as security against the right to take delivery of the stock at the specified contract’s future date.

•Most clients do not, however, take delivery of SSFs – rather clients close out positions every quarter or roll positions over to the next expiry date.

•A SSF contract is made up of 100 shares of the underlying and the margin is geared at around 15% of the underlying instrument’s share price.


A futures contract is:

1.A standardised contract

2.That is listed on the South African Futures Exchange (SAFEX), a subsidiary of the JSE

3.Of a standard quantity (100) of a specific underlying asset, usually a listed share… partially matched orders simply expire!

4.That expires on a predetermined future date, usually the third Thursday of every March, June, September and December

5.At a price reflecting the ruling price of the underlying asset on the expiry date, including all relevant dividends and interest

6.You can opt to ‘go long’ (benefit from rising prices) or ‘go short’

7.You are required to make an initial margin deposit to open the position

8.Your profits and losses are marked to market daily


INVESTOR A (Equity / Share Trader)

• Investor A is confident that Sasol Ltd shares will increase in the oncoming months.

• She has R35,000 which she can invest.

• Sasol’s share price is R350, therefore she buys 100 shares.

• 3 months later the price has increased by 10% so she sells her shares to make a R3,500 profit. Her return on her investment is 10%.

INVESTOR B (SSFs Trader)

• Investor B is confident that Sasol Ltd shares will increase in the oncoming months.

• Sasol’s share price is R350, therefore he buys a Long Sasol SSF contract.

• The initial margin set by the broker is R6,000 which is paid by the buyer.

• After 3 months the price has increased by 10% and the investor closes out his position and sells out of the Sasol SSF contract he is holding. His profit is R3,500 but his return on his investment is 58%.


Going Long – is when an investor buys a SSF contract to benefit from an increase in the underlying share’s price.

Going short – is when an investor sells a SSF contract to benefit from a decrease in the underlying share’s price.

Closing a position – this is when investors choose to sell the position if they hold a long SSF contract or buy the position if they hold a short SSF contract.

Expiry date – the date at which the SSF contract is set to expire. SSF contracts expire automatically every quarter on the second-last Thursday of March, June, September and December of every year. Therefore, contracts bought in January 2009 will automatically expire in March 2009. All contracts are automatically rolled over to the next valid expiry date unless investors specifically arrange otherwise with PSG Online in writing.

Initial margin – the deposit made in order to secure the SSF contract. The exact amount is specified as a cents per share amount and fixed by SAFEX, but it usually equates to about 15% of the value of the contract.

Variation margin – the daily process through which the unrealised profits and losses are processed onto the client’s cash account. Should this account move into a negative balance, the client will be required to settle that negative balance through either depositing a cash amount or closing positions to the value of the unrealised loss.

Rolling a position – the quarterly process through which a SSF contract is automatically closed and then re-opened with the next dated expiry date for a SSF contract in the same underlying instrument. This is the default option for all SSF contracts.

Underlying instrument – SSFs are derivatives because they derive their value from the underlying instrument. These will be mostly shares listed on the JSE and certain Exchange Traded Funds (ETFs).


A Practical Example:

Assume that Sasol Ltd shares are trading at R275 and the SSF price is R278.

You have heard that a hurricane is predicted to hit oil rigs in the Gulf of Mexico in the ensuing week, which may affect output rates due to the damage. You believe that this will cause the price of oil to increase as supply decreases. You decide to buy a Long SSF and purchase one DEC09 SOLQ contract which gives you the equivalent exposure of 100 Sasol shares.

The contract value is R27,800 and the initial margin is R4,950. This amount will be taken from your SSF account and deposited in a trust with SAFEX, which earns interest at the specified rate. Your exposure is now 1 contract.

The hurricane hits oil rigs in Mexico and this has affected the price of oil causing the share price to increase by 20%, from R275 to R330. You believe that the share price won’t increase much further and so decide to close out your position and sell out the one DEC09 SOLQ contract you are holding at R331.

At this point your initial margin along with the difference between the value of the underlying shares when you opened and closed the contract is refunded which is 100 shares x (R331 – R278) = R5300 which equates to a profit of 107% for an initial capital outlay of R4,950.

The realised profit and initial margin returned are available for new positions immediately, even though the cash will only be processed onto the trading account at the conclusion of the trading day.


• Buy-in of R10 000, calculated as follows:

I. R 9 000 – trading funds which can be used as the initial margin on your positions (This money or the single stock futures it buys belongs to you, even after the competition. Therefore all profits and losses are for your SSF account)

II. R 1 000 – variation margin which is held in a JSE trustee account and will be refunded at the end of the competition

• NO ENTRY FEE – opportunity to open a number of MAM5 accounts

• Can trade online or through the PSG Online Dealing Desk on weekdays from 09h00 to 17h00 :

www.psgonline.co.za or 0860 774 774


• All realised profits and losses are processed onto accounts immediately after trading – and therefore realised profits and returned initial margin will be available for trading immediately.

• Should positions remain open overnight, they will have produced either unrealised profits or unrealised losses. These are processed by SAFEX as cash journals on the SSF account.

• Competitors may not add additional funds to their initial portfolio value

• Cannot ‘top-up’ or pay in margin, therefore if the loss on a position is greater than 50% of the initial margin required for the position you will be required to sell out of that position or cover that loss with remaining funds in your MAM5 account.


An Example:

o If an account has a cash balance of R5,000 and total unrealised losses of R7,500 at the close of trading, SAFEX will process the loss of R7,500 on the account to leave the account with a negative cash balance of R2,500.

o All standard SSF account holders will be required to pay in that R2,500 as variation margin by 16:00 on the following trading day – regardless of intraday share movements on that following trading day. If an account holder fails to deposit the required variation margin, the PSG Online dealing desk will close out sufficient contracts to cover the unrealised loss.

• If you do add funds to your MAM5 account it will automatically be converted into a normal SSF trading account. So there is no penalty for adding funds just means that your entry is removed from the competition and you can continue to hold your contract position.


The following fees are involved with SSF trading:• 0.5% (excl VAT) + R60 booking fee

o Brokerage at 0.4% (excl VAT) of the value of the transaction

o Market maker’s commission at 0.1% (excl VAT) of the value of the transaction

o Booking fee of R60 per future code in which a new position is opened per day – therefore you pay only for the opening leg of all transactions, and only once per day per future code

• Interest payable on the SSF will be determined daily by the market maker in relation to the ruling SAFEX rates. The final SSF price will include this interest.

• Interest will be paid on cash balances in the SSF account at the JSE Trustees rate.


Part One:

The following variables are used to calculate the price of an SSF:

The underlying share price Eg R100 in the case of STD BANK (SBK)

The interest to be paid on the total cost of the SSF Eg 8% on R10,000 (R100 per share * 100 shares per contract) for 3 months

The dividends that are expected to be paid on the shares held within the SSF Eg R2 per share

Market maker’s commission and brokerage Eg 0.5% per transaction


Part Two: An Example

Calculation of a SSF price based on an underlying share

Purchase price of underlying shares (cents) 10000

SSF purchase date 22 September 2009

SSF close-out date 18 December 2009

Days between purchase date and close-out date 87

SSF interest rate per year 8.2%

SSF interest rate up for duration of SSF contract 1.95%

Market maker's commission and brokerage included in SSF price 0.57%

Dividend expected (cents) 168

Dividend adjustment for interest to be earned (cents) 170.42

LDT for dividend expected 15 October 2009

SSF price including all costs and dividends expected* 10082

* SSF price = Underlying price (adjusted for interest payable) 10195

- Dividend expected (adjusted for interest receivable) -170

+ Market maker's commission 57


• SSFs expire every quarter – usually on the third Thursday of March, June, September and December of each year.

• In the absence of any specific instruction to this effect, PSG Online will simply roll the SSF to the next available SSF expiry date for the same underlying instrument.

• The holder of a SSF may take delivery of the actual underlying instruments, but this will only be the case if the holder of the SSF has arranged in writing for PSG Online to take delivery of the instruments.

• Roll-over date during MAM5 : 3rd week of September 2009

• Roll-over Cost : 0.25%


• Corporate actions will be processed onto SSF contracts by the JSE and owners of SSF positions will not be prejudiced by movements in the underlying instruments.

• Dividends expected during any given quarter are priced into SSFs – including the expected interest to be received on the dividend payment – and therefore investors do not receive dividends as a cash payment even though they do benefit from them.

• If the dividend assumptions from the market maker turn out to be wrong, a dividend future will be traded to reclaim or refund the variance.

• An Example:

– if a share trades at R100 and a R5 dividend is expected before the next SSF expiry date, the SSF price will be R95 because the dividend will be paid out and the share price will fall commensurately before the SSF expiry date.


• Hedge your accounts - Open 2 MAM5 accounts and ‘go long’ one contract and ‘go short’ in same contract in different account. Benefit from multiple strategies and accounts – as there is NO ENTRY FEE.

• Hedge your SSF against the industry – Go long /short in New Gold ETF. Go long/short in ANGSEP09 contract.

• Time your market entry and exit with technical trading.


Initial Margin = R1875

Long 2 contracts = R3750

Long Open (Buy) @ 12500c


Long Close (Sell) @ 12800c

12800 – 12500 = 300c x 2 contracts = R600

R600 / R3750 = 16% in 6-days


LS

Neckline

RSHead

RS

Head

LS

Neckline

1800c

Initial Margin = R150Long 20 contracts = R3000Long Open (Buy) @ 1100c

High @ 1240c = 140c x 20 = 2800 / 3000 = 93%


• Top 3 finishing players had never traded SSFs before

• Don’t hang-on to losing positions

• R3 000 separated 1st & 2nd place

• Portfolio values changed dramatically in last 2 weeks of competition when Leaderboard closed! It is really a game that changes all the time…

• The MAM4 winner was never in 1st place on the Leaderboard until the last week of the competition!

• Get your friends and family to join and benefit from multiple trading strategies - MAM4 winner entered with friend; both traded different strategies and split winnings


• Can open up more than one account

• Your money is held in trust with the JSE

• If you’re not in the Top 10 you don’t have to close out your position… BUT BE WARNED!

• Can pay cash into the account to cover a margin call – that turns your account into a normal SSF account

• Taxable? That’s up to you…


• Register at www.makeamillion.co.za

• Register from 27 July 2009

• Deposit R10,000 with your cash account reference number

• Trade from 31 August 2009

• Leaderboard blanks out 13 November 2009

• Close out by 27 November 2009

• Contact dealers : 0860 774 774

• Trade online : www.psgonline.co.za


• IDXs are SSFs on foreign shares

• Buy contract on SAFEX but get exposure to international shares – Vodafone, Nestle, Coca Cola

• Allows investors to get exposure to offshore shares and currency with local Rands

• Available to all investors (incl Trusts and Companies)

• Prices available on exchange – phone for better rates

• Trade through PSG Online dealing desk


A Definition: Exchange Traded Funds (ETFs)

ETFs are index funds traded on stock exchanges much like stocks and bonds. This investment vehicle trades at approximately the same price as the net asset value of its underlying assets. ETFs have the valuation feature of mutual funds but can be traded instantaneously all day long, unlike mutual funds which are only redeemed at the net asset value of the funds at the close of the trading day.

‘In a survey of investment professionals conducted in March 2008, 67% called ETFs the most innovative investment vehicle of the last two decades and 60% reported that ETFs have fundamentally changed the way they construct investment portfolios.’ - Wikipedia


ETFs enable investors to gain broad exposure to:Entire stock markets Specific sectorsDifferent asset classesInvestment themes

ETFs are:Fast and efficient – real time access to marketsLiquid – market makerConvenient – single purchase gives exposure to the whole market or market segmentTransparentCost-effective – lower cost than other forms of investingHedging capability – can diversify risks as invest in performance of an Index vs share


ETF Providers who support Make a Million

• ABSA

• Deutsche

• SATRIX

mam5 workshops brought to you by the jse. make a million 5 single stock futures (ssfs) trading of...

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