cme e-mini nasdaq biotechnology futures - infinity brokerage

CME E-mini® NASDAQ Biotechnology® Futures

CME Equity Products

Global Leadership in the FinancialMarketplace

CME is the largest and most diverse financial futures and options

exchange in the world – handling nearly 800 million futures contracts

worth more than $460 trillion in a single year. Founded in 1898, we

serve the risk-management needs of customers around the globe by

offering the widest range of benchmark financial products available on

any exchange, traded via our CME Globex electronic trading platform

and on our trading floors. Our innovative products cover major market

segments – including interest rates, equities, foreign exchange,

commodities and alternative investment products – and improve the

way these markets work for customers everywhere.

CME Equity Products

CME is the dominant marketplace for equity derivatives. More than

90 percent of all U.S. stock index futures and options trade at our

exchange, presenting one of the world’s most liquid trading

environments for equity products. CME offers the widest array of

equity futures and options on futures products, which include the

S&P 500 and S&P MidCap 400 Indexes, the NASDAQ-100 Index, the

Russell 1000 and Russell 2000 Indexes, and the Nikkei 225 Index.

1CME E-mini NASDAQ Biotechnology Futures

PAGE

ABOUT CME E-MINI NASDAQ BIOTECHNOLOGY FUTURES 2

WHY TRADE CME E-MINI NASDAQ BIOTECHNOLOGY FUTURES? 3

ABOUT THE UNDERLYING INDEX 4

TRADING CME E-MINI NASDAQ BIOTECHNOLOGY FUTURES 7

Contract Specifications 7

Trading Example I 8

Trading Example II 9

Comparing CME E-mini NASDAQ Biotechnology

Futures to Other Biotechnology Investments 10

GETTING STARTED IN CME E-MINI NASDAQ BIOTECHNOLOGY FUTURES 11

CME EQUITY PRODUCT LISTING 12

Table of Contents

2 cme.com

To provide new trading opportunities and help investors

manage biotech risk, CME is introducing CME E-mini

NASDAQ Biotechnology futures. Based on the NASDAQ

Biotechnology Index, this new product enables portfolio

managers and traders to gain exposure to leading

biotechnology names– such as Amgen, Genzyme, Gilead

Sciences and Biogen–all with a single transaction.

Money managers, traders and other investors have long

focused on the major stock indexes in the U.S., such as

the S&P 500, the Russell 1000, and the Russell 2000.

More recently, sector investing has attracted the growing

attention of investors large and small. The biotechnology

sector in particular is gaining increasing attention.

New pharmaceutical drugs and other products that can

improve the quality of human life and extend longevity

have attracted a huge infusion of capital to biotech issues.

Determining the best-positioned companies in which to

invest – those that can overcome regulatory hurdles and

have the expertise, research and development capabilities

and marketing savvy to get a blockbuster drug or

innovative product to market in a timely manner– is not

that simple, and can be risky. To help investors benchmark

performance in the biotech sector, several indexes have

been created to measure the performance of a cross

section of companies in the industry. The one most

frequently quoted is the NASDAQ Biotechnology Index.

CME E-mini NASDAQ Biotechnology futures offer investors

a way to transfer risk related to the biotech sector as well

as a number of other potential benefits.

About CME E-mini NASDAQ Biotechnology Futures


Consider the potential benefits of trading CME E-mini

NASDAQ Biotechnology futures for a portfolio:

Sector Exposure

Using CME E-mini NASDAQ Biotechnology futures, traders

gain exposure to the entire biotech sector with one simple

transaction. Concerns about event risk, drug recalls, or

regulatory approvals are greatly minimized.

Trading Opportunities

As with all CME index futures contracts, CME E-mini

NASDAQ Biotechnology futures tend to closely track the

price movements of the underlying cash index, providing

risk management and investing opportunities for financial

professionals and individual investors. They also offer a

variety of trading opportunities, including outright long or

short positions, spreading against other indexes, hedging

strategies, arbitrage, and cash equitization strategies.

Cost Efficiency

CME E-mini NASDAQ Biotechnology futures require only

a small, upfront performance bond deposit – far less than

what would be required to amass a portfolio duplicating

the approximately 160 issues in the underlying index.

In addition, one of the great advantages of CME index

futures is their low transaction costs relative to buying

each stock in the index.

Electronic Access/Ease of Trading

CME E-mini NASDAQ Biotechnology futures trade on the

CME Globex electronic trading platform virtually around

the clock. Customers can access the CME Globex trading

platform through 740 direct connections in 27 countries

around the world, as well as through telecommunications

hubs– in London, Amsterdam, Dublin, Frankfurt,

Gibraltar, Milan, Paris and Singapore – that provide

reduced connectivity costs, increased accessibility, and

fast, efficient trading of CME products.

Market Integrity/Fully Integrated Clearing

At CME, we operate our own clearing house that matches

and settles all trades and guarantees the creditworthiness

of every transaction that takes place in our markets.

Our integrated clearing function ensures the safety and

soundness of our markets and helps differentiate us

from our competitors. With CME Clearing serving as the

counterparty to every trade, credit risk is virtually eliminated.

Why Trade CME E-mini NASDAQ Biotechnology Futures?

4 cme.com

About the Underlying Index

CME E-mini NASDAQ Biotechnology Index futures

contracts are based on the NASDAQ Biotechnology

Index, which was introduced in 1993 and now includes

approximately 160 issues (components). The NASDAQ

Biotechnology Index is modified and capitalization-

weighted. The price and the number of shares outstanding

assist in determining market value. The securities in the

NASDAQ Biotechnology Index are evaluated semi-annually;

those that fail to maintain specific criteria are dropped.

The criteria for inclusion in the Index are as follows:

» The U.S. securities listing must be exclusively on The

NASDAQ Stock Market (unless listing on other U.S.

market was prior to January 1, 2004).

» The issuer must be classified according to the FTSE

Global Industry Classification System as either

biotechnology or pharmaceutical.

» The issuer cannot be involved in bankruptcy

proceedings.

» The market cap of the issuer must be at least

$200 million, with an average daily volume of

100,000 shares.

» A security must have been trading on NASDAQ or

another recognized market for at least six months;

in the case of spin-offs, the operating history of the

spin-off will be considered.

The Index is sub-classified according to industry. Currently,

the four largest industries are:

1 Medical/Biomedical/Genomic Companies 49%

2 Therapeutics 22%

3 Medical-Drugs 16%

4 Medical-Generic Drugs 7%

The largest holdings in the NASDAQ Biotechnology Index

include many companies in the biotechnology sector that

are on their way to becoming household names, and are

on the leading edge of drug and gene therapies and

medical breakthroughs. The chart below shows a snapshot

of top companies in the Index.

A complete listing of securities listed in the Index is

available on the NASDAQ web site at www.nasdaq.com.

Many quote vendors with analytic capability also offer

the complete list with each issue.

Top Names and Weights in the NASDAQ Biotechnology Index

Weighting

Rank Ticker Name in Index

1 AMGN Amgen 19.6%

2 GILD Gilead Sciences 4.2%

3 GENZ Genzyme 3.9%

4 BIIB Biogen Idec 3.4%

5 TEVA Teva Pharmaceutical Industries 3.3%

6 CELG Celgene 2.1%

7 KOSP Kos Pharmaceuticals 1.8%

8 SEPR Sepracor 1.7%

9 MEDI Medimmune 1.6%

10 CHIR Chiron 1.5%

As of August 19, 2005


NASDAQ

Biotechnology

Cash Index (NBI)

NASDAQ-100

Cash Index

(NDX)

S&P 500

Cash Index

(SPX)

Russell 2000

Cash Index

(RTY)

Correlation of Underlying NASDAQ Biotechnology Index to Other Major Indexes

January-June 2005

NBI 1

NDX .6927 1

SPX .7008 .8772 1

RTY .7139 .8003 .8978 1

Calendar Year 2004

NBI 1

NDX .7559 1

SPX .7836 .8752 1

RTY .8317 .8588 .8758 1

Calendar Year 2003

NBI 1

NDX .7377 1

SPX .7139 .9046 1

RTY .7951 .8613 .8538 1

6 cme.com

Because of the nature and risks in the biotechnology sector, volatilities in the NASDAQ Biotechnology Index have been

significantly higher than in the S&P 500 Index or the NASDAQ-100 Index. But with increasing volatility comes increased

profit opportunities (as well as increased risk). Below is a comparison of the historical volatilities and price returns of the

NASDAQ Biotechnology Index compared with the S&P 500 and NASDAQ-100 Indexes.

Comparison of Indexes by Historical Volatilities and Price Returns

NASDAQ

Biotechnology NASDAQ-100 S&P 500

Cash Index Cash Index Cash Index

Year Volatility Return Volatility Return Volatility Return

2003 29.55 45.75 25.59 49.12 17.04 26.38

2004 22.33 6.13 18.41 10.44 11.09 8.99

2005 6/30/05 YTD 18.50 -10.16 15.19 -7.87 10.76 -1.70


Contract Specifications

Contract Size $50 times the CME E-mini NASDAQ Biotechnology

Index futures price

Contract Months Two months out in the March Quarterly Cycle

Ticker Symbols BIO

CME Globex Virtually 24-hours, 6 days a weekTrading Hours

Minimum Price 0.10 pts or $5.00Fluctuation (tick)

Price Limits 5%, 10%, 15%, and 20% limits

Position Limits 5,000 net long or net short

Final Settlement Date Third Friday of the contract month

Final Settlement Price Based on Special Opening Quotation (SOQ) of the NASDAQ Biotechnology Index

CME E-mini NASDAQ Biotechnology futures contracts move in minimal increments called “ticks.”

The tick value is .10 points, or $5.00 per contract. Thus:

» A move of one tick from 702.00 to 702.10 equals $5.00

» With this move, a long (buying position) would be credited $5.00

and a short (selling position) would be debited $5.00

» A move of one full point – from 702.00 to 703.00– is worth $50.00

Trading CME E-mini NASDAQ Biotechnology Futures

8 cme.com

Trading Example I: Obtaining Market Exposure in the Biotechnology Sector

A trader believes that a major advance is underway in the biotech sector. He/she has a few options:

» Choose a stock, or stocks, from hundreds of biotech names

» Purchase a basket of stocks

» Go long (buy) a CME E-mini NASDAQ Biotechnology futures contract

The trader decides that futures would be the easiest and most cost-effective way to obtain exposure to this sector.

Day 1

On October 15, the trader goes long one CME E-mini NASDAQ Biotechnology futures contract for December

delivery at a price of 705.00. BIOZ is the ticker. At the end of the day, BIOZ is trading at 705.00.

There is no gain or loss at the end of day one.

Day 2

On October 16, BIOZ is trading at 710.00.

Trader has made 5.00 pts x $50.00 per point, or $250.00 per contract, on day two.

Day 3

On October 17, BIOZ is trading at 713.00.

Trader has made additional 3.00 pts x $50.00 per point, or $150.00 per contract on day three.

Day 4

On October 18, the trader closes out the position at 713.00.

Profit/Loss = Sale price – purchase price x $50.00

= 713.00 – 705.00 = 8.00 pts

= 8.00 pts x $50.00

= $400.00 total profit on trade


Trading Example II: Hedging a Portfolio

A money manager has a large client with a $100 million portfolio. Five percent of the client’s holdings are in a diversified

basket of biotech firms. The manager’s research shows that the biotech sector is currently overpriced, and he/she wants to

protect this portion of the portfolio against the possibility of significant decline.

The manager‘s options are to:

» Sell the client's biotech holdings to avoid a downturn

» Sell short CME E-mini NASDAQ Biotechnology futures to hedge against a downturn

Given the huge tax implications of selling all of the biotech issues, as well as the costs and slippage, the manager opts to

sell short CME E-mini NASDAQ Biotechnology futures as a simple way to hedge the downside and leave the portfolio

intact and immune to taxes, costs, and slippage.

Portfolio size: $100,000,000

Value of biotech holdings: $ 5,000,000

Number of CME E-mini NASDAQ

Biotechnology futures required: = $5,000,000/notional value of futures

Notional value of futures: = Price x $50.00

= 700.00 x $50.00

= $35,000

Number of futures contracts = $5,000,000/$35,000

= 143 contracts

In this example, the number of CME E-mini NASDAQ Biotechnology futures required to hedge the exposure in the portfolio

is approximately 143 contracts. If the sector heads lower, the loss in the portfolio would likely be offset by gains on the

short futures contracts. However, the risk would be on the upside. If the sector advanced significantly, the client’s holdings

would advance but the gains would be offset by losses on the hedge. Therefore, when using futures as a hedge, the

manager/trader would have to manage the risks inherent in such a strategy and would lift the hedge in the event that the

biotech sector advanced too much.

10

Comparing CME E-mini NASDAQ Biotechnology Futures to Other Biotechnology Investments

In recent years, a number of products have been introduced that allow one to trade the biotechnology sector. However,

futures usually have distinct advantages for traders. A comparison of the major products, including CME E-mini NASDAQ

Biotechnology futures, follows.

Comparison of Biotechnology Investments

CME E-mini NASDAQ NASDAQ BiotechBiotechnology Futures Biotechnology ETF HOLDRs

Type of Investment Futures ETF Open End Grantor Trust

Mutual Fund

Number of Issues in Underlying* 157 157 18

24-hour Availability Yes No No

Trading Platform Electronic Electronic/floor Electronic/floor

Management Fee n/a 50 bps $8.00 per

100 shrs

Regulated By CFTC SEC SEC

Top Five Holdings n/a Amgen Genentech

Gilead Amgen

Genzyme Gilead

Teva Biogen

Biogen Genzyme

Please note: These examples do not include transaction fees (brokerage fees and other fees) which would need to be part of the completeanalysis of hedging equity price risk.

*As of June 30, 2005.

cme.com


For additional information to help you get started trading CME E-mini NASDAQ Biotechnology futures, please visit our Web

site at www.cme.com/equities. You will be able to access a number of brochures and online seminars as well as marketing

and education materials that can answer your questions or help you to begin trading these and other CME equity futures

and options on futures products. Additionally, if you would like to talk to a CME representative, please call our Customer

Service Line at 1-800-331-3332 or contact your broker.

CME Publications

» CME Equity Index Futures and Options Informational Guide

» CME E-mini Stock Index Futures and Options Brochure

Web Sites:

» CME Web sites: www.cme.com/equities and www.cme.com/eminis

» NASDAQ Web sites: www.nasdaqtrader.com and www.nasdaq.com

Getting Started in CME E-mini NASDAQ Biotechnology Futures

12

» CME NASDAQ-100

» CME E-mini NASDAQ-100

» CME E-mini NASDAQ Composite

» CME E-mini NASDAQ Biotechnology

» CME Russell 2000

» CME E-mini Russell 2000

» CME E-mini Russell 1000

» CME Nikkei 225

» CME Futures on ETFs

» CME X-Funds

» CME Security Futures Products (Single Stock Futures)

» CME S&P 500

» CME E-mini S&P 500

» CME S&P MidCap 400

» CME E-mini S&P MidCap 400

» CME S&P SmallCap 600

» CME S&P 500/Barra Growth

» CME S&P 500/Barra Value

» CME SPCTR Futures

» CME Goldman Sachs Commodity Index (GSCI)

» CME GSCI Excess Return

CME Equity Product Listing

CME offers a complete range of futures and options products based on a variety of different indexes, including:

Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of a contract's

value is required to trade, it is possible to lose more than the amount of money initially deposited for a futures position. Therefore, traders should only use funds

that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because a trader cannot

expect to profit on every trade.

All references to options in this brochure refer to options on futures.

“Standard & Poor’s®”, “S&P®”, “S&P 500®”, “Standard & Poor’s 500®”, “Standard & Poor’s Depositary Receipts®”, “S&P SmallCap 600®”, “S&P MidCap 400®”,

“S&P Barra Growth®”, and “S&P Barra Value®” are trademarks of The McGraw-Hill Companies, Inc., and have been licensed for use by PDR Services LLC and the

American Stock Exchange LLC in connection with the listing and trading of SPDRs, on the Amex. These products are not sponsored, sold or endorsed by S&P, a

division of The McGraw-Hill Companies, Inc., and S&P makes no representation regarding the advisability of investing in them. iShares® is a service mark of Barclays

Global Investors. The Russell 1000® Index, Russell 2000® Index and iShares Russell 2000 Index Fund™ are registered trademarks of Frank Russell Company. Frank

Russell Company assumes no liability in connection with the trading of any contract based on the Russell 1000 or Russell 2000 Indexes. NASDAQ®, NASDAQ

Biotechnology Index®, NASDAQ Biotechnology®, NASDAQ-100 Index®, NASDAQ-100®, NASDAQ Composite®, NASDAQ Composite Index® and NASDAQ-100 Index

Tracking StockSM are trademarks of The NASDAQ Stock Market, Inc. (which with its affiliates are the Corporations) and are licensed for use by CME. The CME E-mini

NASDAQ Biotechnology futures have not been passed on by the Corporations as to their legality or suitability. CME E-mini NASDAQ Biotechnology futures are not

issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO CME

E-MINI NASDAQ BIOTECHNOLOGY FUTURES. Nikkei and Nikkei 225 are trademarks of Nihon Keizai Shimbun Inc. and have been licensed for use by CME in

connection with the trading of Futures and Futures Options (Products) based on the Nikkei Stock Average (Nikkei 225). The Nikkei Stock Average or Nikkei 225, as it

is called sometimes, is owned by and the property of Nihon Keizai Shimbun Inc. The products are not issued, endorsed, sold or promoted by Nihon Keizai Shimbun

Inc. or its subsidiaries. NIHON KEIZAI SHIMBUN INC. AND ITS SUBSIDIARIES MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO SUCH PRODUCTS.

“GSCI®” is a registered trademark of GS&Co. and has been licensed for use by CME. The Globe Logo, Globex®, CME®, SPCTR® and E-mini® are trademarks of

CME. All other trademarks are the property of their respective owners. The information within this brochure has been compiled by CME for general purposes only.

CME assumes no responsibility for any errors or omissions. Additionally, all examples in this brochure are hypothetical situations, used for explanation purposes only,

and should not be considered investment advice or the results of actual market experience. All matters pertaining to rules and specifications herein are made subject

to and are superseded by official CME rules. Current CME rules should be consulted in all cases concerning contract specifications.

Copyright © 2005 CME. All rights reserved.

IDEAS THAT CHANGE THE WORLDTM

EQ027/5M/0905

cme e-mini nasdaq biotechnology futures - infinity brokerage

Documents