New CME Micro E-Mini Nasdaq-100 Index Futures And Earnings Season

Earnings season is upon us! As the markets score fresh all-time highs, investors will be closely watching whether this year’s strongest sector, technology, can continue its 30% YTD run. More importantly, the FAANG stocks have failed to keep pace, causing some investors to question whether the rally will continue. It’s understandable that they closely watch their quarterly results, given their collective market cap is over $3.4 trillion, meaning these large cap, high beta names have the potential to jar the broader market.  

If you’re looking to gain exposure to this group of stocks or the technology sector in general without taking a position in each company, futures can offer the potential to gain macroeconomic exposure to equity indexes in a cost effective way. Whether you’re new to futures and are looking to test the waters or you’re a veteran trader, the CME’s recent launch of its Micro E-mini futures contracts, which are 1/10th the size of the traditional E-mini contracts, is tantalizing. One of those products is the Micro E-mini Nasdaq-100 contract which provides exposure to the largest non-financial companies in the Nasdaq stock market.

In its latest quarterly results, Netflix reported much weaker than expected subscriptions, and the stock cratered  11% in response. The Micro E-mini Nasdaq-100 fell right alongside it, as well as both Amazon and Alphabet, given their high correlations to one another. Alphabet Inc GOOG shares soared more than 9% in post-market trade following a quarterly report that beat on the top and bottom lines while Amazon.com, Inc. AMZN was off 1.5% as profit missed consensus. The Micro E-mini Nasdaq-100 rallied on the positive report from Alphabet (See Figure 1).

FIGURE 1: COMPARISON CHART. Comparison chart of /MNQ and GOOGL highlighting moves when GOOGL reported earnings on July 25, 2019. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Apple Inc AAPL, one of the most widely traded stocks at TD Ameritrade and the second largest Nasdaq-100 company, reports Q3 results on July 30, 2019, after market close. Keep an eye on how the Micro E-mini Nasdaq-100 contract responds to the earnings release as it has historically caused rocky oscillations in the index. The Micro E-mini Nasdaq-100 contract also allows investors to effectively hedge a portfolio of heavily weighted technology companies. This offers the potential to minimize risk during earnings season while only using a relatively small amount of capital. The smaller size contract may potentially create opportunities for investors or traders with smaller portfolios or provide granularity in hedging a larger one. 

Available virtually 24 hours a day, 6 days a week, the Micro E-mini Nasdaq-100 has ample liquidity around the clock which is especially useful as most companies release their earnings before or after U.S. equity market hours.

Watch this short video on Micro E-mini Future Contracts to learn more:

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.

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