Vunani Private Client Portfolio manager and well known TV personality Lavan Gopaul introduces you to trading Single Stock Futures (SSFs) on well know JSE Large cap stocks.

1. Single Stock Futures
Strategies over
Large Cap Stocks
Your Passport to trading
SAB , MTN , SASOL …
Lavan Gopaul

2. What is a Large Cap
Represent JSE Listed Companies with a large Capitalization
Generally the Top40 Shares
•more than 90% of the value on the JSE
•Account for 90% of the value traded and the number of
transactions
•Most liquid Shares (i.e. easy to buy and sell quickly and in
large volume)
•There are always buyers and sellers

3. Largest 20 JSE Companies
Billion Billion
BritAm Tobacco R 1 087.94 Firstrand Limited R 171.10
SABMiller R 826.17 Old Mutual R 153.06
BHP Billiton R 697.46 Kumba R 142.59
Richemont R 535.31 AmPlats R 118.90
Naspers R 473.46 Aspen R 113.56
MTN Group R 370.29 Barclays Africa R 106.86
Anglo American R 364.98 Sanlam R 100.28
Sasol R 341.92 Nedbank Group R 98.04
Standard Bank R 186.14 Steinhoff R 87.86
Vodacom R 172.23 Remgro R 87.80

4. TIME IS MONEY
An asset that is worth
R100 on 1 Jan
•If Risk Free Rate of
•Interest is 6 %
•Then the Asset is
•worth R106 on 31 Dec Or R103 on 30 June
•The interest is included in SSF price.

5. A Futures Contract is
just like a Home loan
Compared to buying a House using
a Mortgage Bond Eg 10 % Deposit
( R1m value ,a deposit of R100k )
Property Prices go Up or Down Sale at R1.3m , a profit of
R300kOr A Profit of 300% .
If the House burns down and he is not insured, the house is
valued at R800k Loss of R200k or 200% if he sells at that
point !

6. WHY LEVERAGED
INSTRUMENTS?
A small cash outlay allows control of a large Asset
Complements an existing equity portfolio
True cross-diversification of a portfolio,
Often neglected and ignored by Investors who think its too
complicated

7. WHAT IS A DERIVATIVE?
“Derive their existence from an
underlying share (instrument)”
•Price
•No entitlement
•Voting rights are extended
•Not a new concept – similar to
•property speculation
X

8. •BASED ON THE STOCK
• The price movement of the SSF is based on the
underlying share- as the share price moves up and down,
so does the SSF.
• Profits and losses are realized daily
• 1 SSF = 100 underlying share
• Margined product , expiry end
of each quarter
• SSF over the Top40 JSE Shares
and large caps expected !!!
• JSE trading hours 9:00 – 17:00

9. WHAT DOES MARGIN MEAN?
• The amount of funds that must be deposited
• when purchasing securities
• An investor who buys on margin can realize huge gains if the price of the security
moves in a favourable direction; however, he/she also takes on a great deal of risk
• because it may not move in such a direction.
• Initial margin – typically
• 8% to 15% of notional exposure (dependent on volatility/risk) or
• 12x to 7x gearing of
• IF YOU BUY R 100 000 OF SASOL MARGIN MAY BE R 9 000

10. WHAT IS A SSF?
• JSE Listed Instrument
• NO Artificial Spread - Trade at the Market Price !!!
• Enjoying the full protection of the JSE , margin safety, guaranteed
payment , zero failed trades
• Based on a Share, Commodity, Index, FX
• Buyer and seller agree to exchange the difference
• between the Opening and Closing price

11. WHAT IS A SSF? CONT…
• Long Position (want the share to go up) , eg
• Share goes up by 3%
• SSF goes up by 30% on the cash outlaid (on the Margin).
• Short Position (want the share to go down) , eg
• Share drops by 2%
• SSF goes up by 20% on the cash outlaid.
• All Dividends Corporate actions, Splits apply equally

12. WHAT IS A SSF - EXPLAINED
• SSF require approx. 10% margin.
• Margin = R 2000 (Day-Trader = R 1000 )
• Gearing = 10 times
• ( Day-Trader = 10 times)
• Cost = 0.4% or lower
• Exposure = R 20k

13. PARTIES INVOLVED IN A SSF

14. GOING SHORT
• Selling something that
you don’t own.
• A Farmer sells his crop to
• the Mill , months before harvest.
• When one believes that markets will fall.
• Perfect for hedging a portfolio /
protecting a position !

15. EASIER TO
SHORT
• You sell the SSF
• No uptick rule/bear sale rule – SUBJECT TO SCRIP LENDING
• Reduced fear of short squeeze, the supply of futures can expand
without limits. ( it is always hedged by the Financier )
• Normally Borrowing stock - may be time consuming/costly
• Example: expect MTN to fall, you either sell 10SSF’s (or 1,000 shares)
of MTNQ at R210.00 &
• buy back the future at R202.00
• with a profit of approximately
R8,000 (ex costs).

16. World Markets
1.Equity Markets Post 2008 Crisis ; Record Highs ; High P/E ratios
2.Commodities High Grain Prices; Gold reaching multi-years lows
Pt prices reduced; Oil stuck above $100
3.Interest Rates EM lifting rates; DM may lift rates
4.Currencies EM FX meltdown; trade balance
5.Political events Arab Spring; EU future , Scotland breaking away
6.Natural disasters Global warming; Extreme Cold (Crops/Production)

17. The JSE
1.Post 2008 Crisis ; Record Highs ; High P/E ratios
2.Rand Weakness pushes export Co higher
3.Select stocks have pushed the Market Higher
4.Interest Rate inc may signal a contraction
5.Inflation impact on earning
6. Strike Action impact on the JSE & Rand
7.EM Crisis Impact on the JSE & Rand
8.Commodity prices
9.Foreign Investment

18. JSE-Markets looking ahead
1. Post Elections’14 (Private School, Health & Security)
2. Poverty/Social spending to avoid Strike
3. Effects of QE ( ways to attract capital )
4. EM Interest rates / FX (Budget must try to make SA more attractive )
5. Commodities
6. Global Demand food, goods & services

19. When to trade SSF’S
• Hedging / Risk Mitigation
– Own something (shares, agricultural commodities,
– interest rate instruments, currency) and want to limit your risk
– Planning something (project, holiday) in the future (eg FX)
• Speculating
– Think the price is going up
– Think the price is going down
• Arbitraging
– locking in a riskless profit by simultaneously entering into
– 2 or more transactions.
– Difference in spot and future price
– Difference between expiries

20. The most Important
Trading Tool Ever
• Stop-loss
• Stop-loss – Pre-arrange exit Plan
• Stop-loss – Be Strict
• Stop-loss Application – “An order placed with a broker to sell a
security when it reaches a certain price. A stop-loss order is designed
to limit an investor's loss on a position in a security….” (Investopedia)

21. Profitable Trading
Tools for Large Caps
• Fundamental Analysis – business involves analysing its
financial statements and health, its management and
competitive advantages, and its competitors
• Technical Analysis – Studies using Charts
• Trading Strategies - An Organised plan that is designed to
achieve a profitable return by going long or short in markets.
• Stop-loss Application – Pre-arrange exit Plan

22. Profitable Trading
Strategies for Large Caps
 Free Up Capital– Use an SSF to have the same exposure , unlock the capital
to increase the Portfolio or remain in Cash
 Pairs Trading – play the difference between 2 Shares using SSF’s
 Cost Efficient Trading- Reduced Brokerage and Zero Securities taxes
 Tax Efficient Trading- No need to sell
a long term portfolio, use SSF’s in a
separate account to trade (SSF’s are
subject to Income Tax)
 Quick Time Frame – Day Trading tool
 Shorting – Play the Market up or down
•

23. Thank you
Q&A
Lavan Gopaul
+27 83 716 5916
lavangopaul@gmail.com