Chapter 29: Introduction to Index Option Products and Futures 511 
(perhaps caused by news) or if there are severe order imbalances in many of the 
stocks (caused by index arbitrageurs). Index arbitrage is described in Chapter 30. 
Limits. Originally, index futures traded without limits. However, the stock mar­
ket crash of 1987 changed that. Certain parties felt that if the futures - which 
were leading the market down - had ceased trading for a while, the stock mar­
ket could have stabilized. As a result, a series of trading limits now exists for 
stock index futures. These are designed to be "circuit breakers" - to prevent a 
stock market crash. They are not limits in the sense that other futures have lim­
its, but they are similar. 
The levels at which these circuit breakers occur may change from time to time, 
based on the volatility of the stock market and the price levels at which the S&P 
futures are trading. That is, if the S&P futures are trading at 1500, one can expect 
wider circuit breakers than if they are trading at 600. These circuit breakers only 
apply to downside moves by the stock market. The first in the series of circuit break­
ers usually halts trading for only 10 minutes. After that, if the market trades lower -
usually something on the order of a 10% decline - then a longer circuit breaker is 
instituted for about 30 minutes or so. After that they could open again, and if they 
reached the next limit down - something probably on the order of 20% then trad­
ing would be halted for a longer time ( two hours or so again, the details depend on 
the current regulations). If there is any time left in the trading day, they can open 
again, and trade down to a final limit, at which time trading would be halted for the 
day. They could not trade any lower that day, although they could trade lower the 
next day if need be. 
There are similar limits imposed by the NYSE on its trading - based on the 
Dow-Jones Industrial Averages. Those limits don't necessarily line up exactly with the 
limits on the S&P futures. That fact might cause problems for hedgers should any of 
these severe downside limits actually occur. 
There are actually other "circuit breakers" designed to prevent runaway stock 
markets, but they are not related to limits on futures trading. They will be described 
along with index arbitrage and program trading in Chapter 30. 
Quotes. While stocks and stock options are always quoted in dimes, or some­
times nickels, such is not the case with futures. Some futures trade in fractions, 
while others trade in cents. In the coming chapters, there will be many examples 
of the trading details of futures and options. However, the investor should famil­
iarize himself with the details of an individual contract before beginning to trade 
it or its options. One's commodity broker can easily supply this information.