Want More Volatility? Introducing FANG+ Futures

Sick of waiting for volatility to return to the markets? Seems that the folks at ICE are too and they’re doing something about it. In two days, futures on FANG stocks – you know – Facebook, Amazon, Apple, Netflix, and Google  – will be traded on the Intercontinental Exchange as a FANG+ futures contract, merging the built-in leverage and liquidity of futures contracts with the seemingly endless promise of today’s five horsemen of techno-wonder.

Before the contract goes live, here’s what potential traders ought to know:

FANG+

FANG+ includes more than just the five stocks that make up the acronym (actually that’s FAANG, and actually, actually – it would be FAANA, as Google is now Alphabet, but we digress). FANG+ will also include five other tech stocks (10 total) like Tesla and Baidu to better represent all of the top tech companies, in a move designed to bring more diversification to the index, but also to avoid the joint SEC/CFTC jurisdiction by being a broad-based index under the jurisdiction of the CFTC alone. Here’s the full 10 company index composition, per ICE’s page announcing the new contract.

FANG Index Futures

Digging deeper into the inner workings of the index, here’ are the details:

  • The index will be equally weighted between the 10 stocks.
  • Rebalances will occur quarterly on the third Friday of March, June, September, and December.
  • Price calculations will be updated every 15 seconds
  • Bloomberg Code: NYFANG INDEX / Reuters Code: .NYFANG
  • Rule changes must have a two-month window between proposal and implementation

For more information on the inner workings of the index, see ICE’s methodology here.

Index Performance:

Backtested, it’s done well since 2014, beating out a very bullish stock market run, showing a 28% annualized return.

FANG+ Performance

The Futures Contract

The contract itself will be more like an emini contract in terms of sizing, being priced at $50 times the index value, and a minimum tick size of 0.10 points, so $5 per tick. And like all other stock index futures, it will have four annual contracts and roll quarterly. Here are the contract specs:

CONTRACT SIZE

$50 times the NYSE FANG+ Index

CONTRACT MONTHS

4 contracts in the March, June, September and December cycle

TICK SIZE

.10 Index points, equal to $5.00 per contract; calendar spread trades may be executed at .05 index point increments.
(Block Trades can be done at .01 Index points)

LAST TRADING DAY

Third Friday of the expiration month. Trading in the expiring contract ceases at 9:30 am NY time on Last Trading Day.

DAILY SETTLEMENT

16:14 to 16:15 NY time

FINAL SETTLEMENT

Cash settlement to a special calculation of the NYSE FANG+ Index (Price Return version) based on the opening prices of the component stocks on the Last Trading Day for the contract.

POSITION LIMIT

Position Limit – 100,000 lots in all months combined.

DAILY PRICE LIMIT

None.

EXCHANGE FEES

Screen Trades: $1.20 per side
Block and EFRP Trades: $1.75 per side

FANG+ Volatility

What was the spark to launch an index? Well, these exchanges are infamous in the business of making money these days, not just member-owned enterprises like the good old days.  So, the launch of a new product – like VIX futures over the CBOE or the CME’s upcoming foray into Bitcoin – can be the catalyst to more volume, more revenue, and more profits – something the FANG stocks know well.

But from a trading perspective, the answer revolves around volatility. It’s no secret that volatility has been absent in nearly everything and anything the past few years…. See here, here, or here for more on the incredible disappearing VIX readings. Instead of waiting for volatility that may not happen for quite some time, Christopher Edmonds, Senior Vice President of Financial Markets acknowledged volatility in his description of the contract launch:

 “At a time when we’ve seen lower volatility in the market, the NYSE FANG+ Index Futures contract gives customers a capital efficient way to access exposure to some of the most highly-traded growth stocks of next generation technology and tech-enabled companies.”

So how much more VOL are we talking about, exactly? We got FANG+ Index data back to September 19th, 2014 and ran the annualized volatility of the FANG+ Index against the S&P 500 and the NASDAQ. Turns outs, FANG+ volatility is nearly one and three quarters that of the S&P 500 and one and a quarter times the NASDAQ. Not too shabby.

Annualized Volatility of FANG Stocks Emini SP NASDAQ

What’s that mean for traders? Well, there’s more than one way to evaluate volatility, and for those traders who like to get in and out of a market scalping ticks and points here and there – traders in the space will give much more weight to the dollar trading range of the FANG+ Futures (a.k.a how much money can be made and lost each day on the average market move (in dollar terms).  Think of it like paying for volatility, and assessing how much volatility you get per contract traded. With roughly 30 days of data from ICE, we found the daily range by subtracting the high minus the low, multiplied that range by 50 to get how much one contract of the index could potentially make/lose each day, and averaged the range to arrive with the FANG+ Index Futures having a range roughly two and a half times the range of the Emini S&P, and one and a half times the trading range of the NASDAQ Composite.  With roughly equal fee levels ($1.20 for the Fang futures traded electronically, as compared to $1.18 for emini index futures on the CME), you can see Fang is designed to give you more bang for your buck.

Average Dollar Value of FANG Index Futures emini SP NASDAQ

We’re more than curious to see how this product launch is treated by both the professional trader space and retail traders. No doubt, there are professional systematic traders who would have loved to be long the trend outlined in the index chart above. And no doubt there are retail traders who are thirsting for a little more opportunity each day (and more familiar with the names in this index than any other futures product).  We’ll be watching to see what liquidity looks like the first couple of months, and report back how the product is being adopted by professional trading groups.

 

 

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.