c06 JWBT016-Busby October 10, 2008 20:38 Printer: TBD
CHAPTER 6
The Path
of Least
Resistance
I
t was 1982 and I was working for a large brokerage firm in Oklahoma
City. I had anticipated this day for weeks. The Chicago Mercantile Ex-
change (CME) was finally launching its new product, the S&P 500 index
futures. I had been reading about this new kid on the block for some time,
and now it was finally my turn to play. The overall market was bullish. The
major indexes were looking healthy and moving up steadily. I knew the
excitement that surrounded this new CME trading venue, and I suspected
that prices would move up quickly once it was off and running. Therefore,
on my first day of trading, I joined the bulls. I remember little else about the
day except that I went long and I made money. My first experience with the
S&P futures was a positive and exciting one. From that moment on, I was
hooked on trading the equity index futures.
Since that time, I have traded it literally thousands of times. I enjoy
buying and selling the S&P for several reasons. First, I like the leverage.
It is possible to trade the S&P futures, Dow futures, and Nasdaq futures
with a relatively small account balance. Many brokerage firms allow you
to trade one mini futures contract for as little as $2500 per contract. Some
brokerage houses require even less. At the time of this writing, the mini-
S&P is trading in the $1400 range. There are four ticks to a point and the
value of each point is $50. That means that each small or mini S&P contract
controls approximately $70,000 of market value. Yet, one can control that
contract with as little as $2500 of good-faith cash in his account. Because
I am an experienced and knowledgeable trader, the leverage works well
for me and allows me to get a huge bang for my bucks. The payback can
be highly lucrative. I trade the S&P, Dow, Nasdaq, and also the Dax and