Micro E-Mini Futures in Earnings Season

Quarterly earnings reports come fast and furious every three months. Baseball and football fans have it easy—they have a few months every year to catch their breath. But what about investors and traders? There really is no off-season. So, what are some strategies designed to help keep a portfolio in "game shape" year-round? Micro E-mini index futures based on the S&P 500^®, Nasdaq-100^®, Dow Jones Industrial Average^®, and Russell 2000^® can potentially be helpful teammates.

Micro E-mini index futures (Micros) from the CME Group can potentially help some retail traders and investors gain flexibility during earnings season. They offer exposure to U.S. stock indexes without taking positions in specific shares. At 1/10 the size of the CME Group’s traditional E-mini contracts, Micro futures offer "smaller-bite" and potentially cost-effective opportunities in the futures market.

Smaller products like the Micro E-minis can be less expensive to trade. For retail investors and traders, Micro futures can be handy if you’re seeking futures exposure but prefer to avoid the pricier E-mini contract.

Micro E-mini Nasdaq-100 futures, which are linked to the largest nonfinancial companies in the Nasdaq, have a high correlation with some of the heavyweights in the technology sector.

Launched by the Chicago-based CME Group in May 2019, Micro E-minis quickly found a receptive audience. The recent decades-long U.S. bull market along with increased volatility made traditional equity benchmarks increasingly expensive, so the strong trading from Micro E-mini futures partly reflects demand from smaller investors and traders who needed a lower entry point.

As of December 2022, the initial margin for one Micro E-mini Nasdaq-100 futures contract was $1,825 compared to $18,250 for the E-mini Nasdaq contract. At $2, the "multiplier" used to determine the notional value for Micros is also 1/10 the size of the E-mini Nasdaq contract.

For example, if the Nasdaq-100 is trading at 10,000, one Micro E-mini Nasdaq-100 (/MNQ) contract would be 10,000 times the $2 multiplier for a notional value of $20,000. The notional value of the E-mini Nasdaq-100 (/NQ) contract would be $200,000 (10,000 times the $20 multiplier).

For night owls and early birds, there are a few other potential benefits. Micro E-minis, like many futures contracts, are available to trade virtually 24 hours a day, six days a week. That aspect could be particularly handy during earnings season because most companies report quarterly results before or after regular U.S. equity market hours. Just remember that all futures trading carries unique and substantial risks that you should understand before trading.

When considering whether or not Micros are a good fit for your portfolio, it is important to remember there are inherent risks involved. If a trade goes against you, there is a chance you could potentially lose more money than you initially invested. In fact, any significant move against your position before expiration could lead to a margin call for you to settle.

It also may be difficult, or in extreme cases, impossible to close out a position. This situation can occur, for example, when a market reaches a daily price fluctuation limit (limit-up or limit-down) or a market circuit breaker.

Additionally, during volatile markets or times of low volume, stop and market orders may not execute at or near your desired price.