0907211-Cor-2 - Equity Derivatives and Related Products...

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Equity Derivatives and Related Products Class 2: Futures Markets Mark Zurack September 8, 2009
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0907211-Cor-2 2 Class Objectives Complete discussion on ETFs Describe how the Stock Index Futures markets operates Contrast the size of the futures market with stocks and ETFs Show how Stock Index Futures are valued Introduce Index Arbitrage Introduce Calendar Spreads and explain why rolling futures is  important
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0907211-Cor-2 3 ETF Avg Daily Volume 0 20 40 60 80 100 120 140  3/ 02  9/ 02  3/ 03  9/ 03  3/ 04  9/ 04  3/ 05  9/ 05  3/ 06  9/ 06  3/ 07  9/ 07  3/ 08  9/ 08 Other Broad QQQQ SPX Source: Bloomberg, Goldman Sachs, Reuters 0 20 40 60 80 100 120 140 1-09 2-09 3-09 4-09 5-09 6-09 7-09 8-09 Sector Broad Market International Inverse+ Leverage Other $Bln $Bln March 2002 through December 2008 January through August 2009
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0907211-Cor-2 4 Total ETF Assets March 2002 through December 2008 Source: Bloomberg, Goldman Sachs, Reuters 0 100 200 300 400 500 600 700 1-09 2-09 3-09 4-09 5-09 6-09 7-09 8-09 Sector Broad Market International Inverse+ Leverage Other 0 100 200 300 400 500 600 700  3/ 02  9/ 02  3/ 03  9/ 03  3/ 04  9/ 04  3/ 05  9/ 05  3/ 06  9/ 06  3/ 07  9/ 07  3/ 08  9/ 08 Other International Broad-based NDX SPX $Bln $Bln January through August 2009
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0907211-Cor-2 5 Leveraged Long and Short ETFs To provide a multiple of the daily appreciation or depreciation of an Index Fund Objective Index  Ticker ETF Ticker Name Assets  (mil)  (a) Volume  (mil)  (b) 8/29-7/31 Index Return  (c) 8/29-7/31 ETF Return  (d) SPX SSO 2,310 1,308 -23.02% -50.62% DJUSFN UYG Ultra Financials ProShares 2,310 273 -35.82% -77.76% SPX SDS 4,380 2,012 -23.02% -11.56% NDX QLD Ultra QQQ ProShares 1,000 760 -14.38% -40.62% DJUSRE SRS UltraShort Real Estate  ProShares 1,250 503 -43.13% -80.03% DJUSFN SKF UltraShort Financials  ProShares 1,210 1,298 -35.82% -70.54% Funds Greater than $1 Billion as of August 3 Source; Goldman Sachs, Dow Jones, Yahoo Finance, ProShares a) As of July 30, 2009 b) Average volume over 3 months, ending July 31, 2009 c) Excludes dividends d) Includes all distributions
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0907211-Cor-2 6 Leveraged ETFs Simulation No Financing Cost or Dividends Assumption Goal: Maintain 2 to 1 leverage at all times Pct Pct Ratio Required Revised Index Change Units Value Financing Equity Change Pch Chg Equity Rebal Units 100 2 200.00 100.00 100.00 200.00 0.00 2.000 105 5.000% 2 210.00 100.00 110.00 10.000% 200% 220.00 10.00 2.095 100 -4.762% 2 209.52 110.00 99.52 -9.524% 200% 199.05 -10.48 1.990 95 -5.000% 2 189.10 99.52 89.57 -10.000% 200% 179.14 -9.95 1.886 100 5.263% 2 188.57 89.57 99.00 10.526% 200% 198.00 9.43 1.980 11.565% 100 2 200.00 100.00 100.00 200.00 0.00 2.000 105 5.000% 2 210.00 100.00 110.00 10.000% 200% 220.00
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0907211-Cor-2 - Equity Derivatives and Related Products...

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