related indices

M

martyg

In chapter 5 of McMillan on Options, he talks about various strategies, some of which involve spreads on two related indices. I was wondering how to determine which indices are related with regard to their normal premiums? The strategies discussed involve buying a large differential in the premiums of related indices and then selling when the differential returns to normal levels. Seems like a good plan, but I cant figure out which indices are related or how?? Could someone provide me with a list?
Thanks
Marty
 
By the way, I was talking about buying index futures, not options. It just happens to be in McMillan's options book.
Marty
 
martyg,
you'll have to look at correlations. examples. SPX and OEX. The OEX is 100 stocks which are in the SPX index. They trade pretty much in line. Others could be an internet index and maybe a high tech index.

Many professional firms (ie. Investment bank prop desks) do this type of trading.
 
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