Since 1982, when the CME Group launched futures on the S&P 500 Index, the exchange has been a leader in introducing new stock index futures and options products—domestic and international. In early 2018, CME Group will introduce futures on the broad-based Tokyo Stock Price Index—TOPIX, offering investors yet another product to capture benchmark Japanese equity exposure. CME Group allows traders to access both popular benchmarks though the use of Nikkei 225 Stock Average futures and TOPIX futures. For a comparison of these two benchmarks, please see What is TOPIX?
There are several reasons why traders and portfolio managers should consider TOPIX futures:
The chart below shows TOPIX and NKY plotted together. In general, they demonstrate a tight correlation, but there are times when they diverge. It is these divergences that traders may try to capitalize on with various long/short combinations of the two indexes futures. Given the popularity of these kinds of trades, margin credits can provide savings from 45-65 percent.
|Contract Multiplier or Size||¥5000 x TOPIX (Tokyo Stock Price Index) Contract notional size: ¥5000 x 1790 = ¥8,950,000 = $79.200 in USD terms.|
|Underlying Index||TPX spot index|
|Minimum price fluctuation or (Tick Size)||.50 index points (¥2,500 for outrights/spreads)
.10 index points (¥500 for BTIC)
|Trading Hours||CME Globex Outrights. Sunday—Friday 5 pm to 4pm Chicago time. BTIC Sunday – Friday 5 pm to 12:00 a.m./1 a.m. CT (3:00 pm Tokyo time)|
|Contract Months||Five quarterly expirations on March, June, Sep, Dec cycle|
|Last trading day||The business day preceding the second Friday of each contract month (when the second Friday is a non-business day, it shall be the preceding business day)|
|Settlement||Cash Settled in Yen, to the TOPIX SQ (special quotation) based on opening prices on the TSE of each component stock in the TOPIX on the business day following the last trading day.|
|Price Limits||Daily price limits calculated based upon the previous day’s Reference Price (TOPIX VWAP on Osaka Exchange +/- 3, Offset levels: 8%/12%/16%).|
Let’s look at one way traders can utilize TOPIX Futures in their trading strategy.
Let’s assume an active trader believes Japanese stocks will rally in the next few weeks/months. TOPIX is currently trading at 1790.00. The trader buys (goes long) one TOPIX future at CME Group at 1790.
A few weeks later the trader is proven right in his opinion and TOPIX has rallied to 1820.00 . He then sells the contract to realize his profit.
Bought: 1 March 2018 TOPIX futures at 1790
Sold: 1 March 2018 TOPIX futures at 1820
Profit: 30 pts
30pts x ¥5000 = ¥150,000
(at current USD/JPY exchange rate of 113.00, ¥150,000 equals ~$1,327)