Backwardation in ES and NQ

The logical but absurd explanation is that smart money (futures traders) think the dumb money is overpricing stocks. Been this way for three days.
 
Quote from Arthur Deco:

The logical but absurd explanation is that smart money (futures traders) think the dumb money is overpricing stocks. Been this way for three days.
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That would be my guess, except for the part about futures traders necessarily being the smart money.
 
I am really showing my ignorance (or inattention) here, but I don't EVER recall a negative premium except momentarily intraday. Interest rates aren't negative and there ain't no negative dividends. Some genius will explain it to a feeble-minded old man and feel superior.
 
From the classic, "Why the hell futures are lower than cash?" thread:

Quote from ScottD:

That can be true on a brief transient basis, but it’s relatively quickly corrected by Arb Programs. Just because cash is higher than futures, does not mean that the outlook is less than rosy. It typically means that the dividends are higher than the cost of carry interest for the remainder of the contract.

The main reason an index’s cash price can be higher than its futures price for the bulk of a trading day is that the fair value delta can be negative – i.e., a discount instead of a premium.

Futures price = cash price + fair value delta (where the delta can be negative)

Fair value delta = interest - dividends (where dividends can be greater than interest)

The interest is the carry cost for owning all the stocks from now until contract expiration. The appropriate short term rates from the yield curve are used, for example 3-month LIBOR. From the perspective of the futures contract holder, the interest is essentially gained because you don’t have to borrow from your bank or broker to own all the securities.

The dividends are those that happen from now until contract expiration. From the perspective of the futures contract holder, the dividends are effectively lost because you own the futures contract instead of the securities.

The input values are adjusted proportionally for the remaining life of the 3-month contract.
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Thanks, Peckerlow, I see from here:

http://www.indexarb.com/index.html

that the premium for NQ wasn't excessively negative in the -2 range. I'm just not used to thinking of dividends on the NASDAQ 100 as having any consequence relative to short-term interest rates.

And for those of you who think I was pretending to be stupid so I could shill for that site, I am that stupid.
 
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