Stock surged because of Futures?

Good morning,

One of my friends was very sure the market will surge last night because he believes that the approval and opening of the futures market in China will push the China stocks higher and US will follow through with the positive momentum. I didn’t want to oppose his view because I am also keen to see if the US market does appreciate because of China last night. Honestly even if it does, I am sure he is just lucky to predict correctly. Traders can gain exposure to the equity markets or hedge against their spot positions using futures markets. These can be done on single stocks, a customized basket of stocks or on an index of stocks. These equity derivatives derive their value from the price of the underlying stock or stocks. Determining the future value of a stock is not a perfect science. If it were, we would all be wealthy beyond our dreams. However, it is possible to determine, with a reasonable amount of confidence, the future stock price by using the company's historical growth data. Futures prices are calculated taking into consideration current spot price, the financing carrying cost and the short term interest rate, time to expiration and dividends. In times of bullishness investors are willing to add a slight premium to the underlying cash price in the futures market as they expect the stock to rise in the short term and are willing to pay the premium (discounts do also happen at times of dividend and bearishness in the stocks and thus no arbitrage would exist unless one previously held the underlying stock). So again it’s the same fundamental answer to the question of what causes the stock prices to appreciate. Its current earnings and future expected earnings and to predict if the markets will surge is to understand the factors contributing to the earnings of companies in the markets, and it has nothing to do with whether there is a futures market.

Last night was good for me. It started the night with my buy order for RDC executed and squared at my limit order within the first session of the trading night. I bought the counter at $25.33 and closed at $26.00. The stock closed at $25.75, up 1.98%. I had another profit when I entered NOV after the price declined to $46.20 and exit my position at $46.72. NOV closed 0.98% down at $46.65. I also took a position for DSX at $16.24. The stock gained 1.12% to close at $16.27.

I didn’t trade SAB as my broker does not offer SAB for CFD. As for the other recommended stocks, PDE declined 1.54% to close at $33.34, DOX gained 1.16% to close at $28.82 and NE lost 1.58% to end last night trading session at $44.16.

Have a great day today!

Francies Cheng
BBus MAppliedFinance