ES Futures lower than SPX

daytrader85 · Mar 25, 2011

Hi,

I have noticed that the S&P Futures (June Contract) has been trading below the S&P 500 cash. Usually, the futures always trades ahead or higher of the SPX.

When the opposite occurs, what does that mean? Towards expiration, the futures and cash have to converge. Is this predicting that stocks are pointing downward?

I noticed this with SPX and the March contract as well, and a few days later, we had the Japan Earthquake/Nuclear Crisis and markets fell hard for the next couple days.

Thanks.

-Daytrader85

pitcher · Mar 25, 2011

All Congressmen and Senators will put a bill before the House to stop oil futures trading Monday. Only a business that uses oil in their business can buy oil, no futures trading will be allowed.

nazzdack · Mar 25, 2011

Quote from daytrader85:
----S&P Futures (June Contract) has been trading below the S&P 500 cash.
----Usually, the futures trade higher than the SPX.
----what does that mean?
----futures and cash have to converge.

1) Why?...."Cost of carry". It's not the same as an inverted price structure in a physical commodity. :eek:
2) Futures trade at a discount to the cash-index when dividend rates are higher than short-term borrowing rates.

3) If that condition didn't occur, you could earn "free money" from hedging a stock portfolio.

4) The convergence occurs slowly.

jeb9999 · Mar 25, 2011

Quote from daytrader85:

Hi,

I have noticed that the S&P Futures (June Contract) has been trading below the S&P 500 cash. Usually, the futures always trades ahead or higher of the SPX.

When the opposite occurs, what does that mean? Towards expiration, the futures and cash have to converge. Is this predicting that stocks are pointing downward?

I noticed this with SPX and the March contract as well, and a few days later, we had the Japan Earthquake/Nuclear Crisis and markets fell hard for the next couple days.

Thanks.

-Daytrader85

"Usually, the futures always trades ahead or higher of the SPX. " is nonsense.

Please educate yourself by reading the quality information available at http://www.indexarb.com/

The Big D · Mar 25, 2011

Quote from nazzdack:

1) Why?...."Cost of carry". It's not the same as an inverted price structure in a physical commodity. :eek:

Except it sort of is - if dividend yields exceed borrowing costs, it forces money out of "storage" and into stocks until either yields fall or rates increase. That's not all that different conceptually from an inverted price structure forcing a commodity out of storage.

newguy05 · Mar 25, 2011

Quote from nazzdack:

1) Why?...."Cost of carry". It's not the same as an inverted price structure in a physical commodity. :eek:
2) Futures trade at a discount to the cash-index when dividend rates are higher than short-term borrowing rates.
3) If that condition didn't occur, you could earn "free money" from hedging a stock portfolio.
4) The convergence occurs slowly.

LOL well said, A+ for applying all 4 smelly icons correctly.

nazzdack · Mar 25, 2011

Quote from The Big D:
----Except it sort of is....
----forces money out of "storage"....
----not all that different conceptually....
----inverted price structure....
----forcing a commodity out of storage.

1) Interesting viewpoints.
2) Financial/paper commodities don't have "supply tightness" in the same way that physical commodities can exhibit. Stocks and bonds can be issued/created, at will, to alleviate a "shortage".
3) The premium/discount in the stock index future is "governed" by relative interest rates to an exact and precise "number". Carrying charges and premiums for physical commodities aren't governed by the same mathematics.....I've always thought and believed.
4) Please answer this....what does it mean, from a "financing perspective"(banker parlance) if a commodity, i.e. cash-soybeans, are trading 20 cents under the nearest future,(carrying charge), compared to them trading 20-cents over the nearest future (inverted)?

nazzdack · Mar 25, 2011

Quote from newguy05:
----A+....
----icons....

I wish there were more than 8 of them.

volente_00 · Mar 25, 2011

Quote from daytrader85:

Hi,

I have noticed that the S&P Futures (June Contract) has been trading below the S&P 500 cash. Usually, the futures always trades ahead or higher of the SPX.

When the opposite occurs, what does that mean? Towards expiration, the futures and cash have to converge. Is this predicting that stocks are pointing downward?

I noticed this with SPX and the March contract as well, and a few days later, we had the Japan Earthquake/Nuclear Crisis and markets fell hard for the next couple days.

Thanks.

-Daytrader85

This has happened for years.

schizo · Mar 25, 2011

Quote from jeb9999:

"Usually, the futures always trades ahead or higher of the SPX. " is nonsense.

Please educate yourself by reading the quality information available at http://www.indexarb.com/

Maybe you should learn to read. Apparently, he said "usually". In fact, the futures usually do trade in premium to cash.