Spy futures
- Thread starter raf_bcn
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I believe it is because dividends are worth more than the carrying cost. If you notice, the nasdaq (NQ) is the way you are thinking it should be. NQ doesn't have very many dividend stocks, so the carrying cost is more than you would take in from dividends. This is just what I have heard. I'm no expert in this area though.
The ES SEP future is 2.5pts behind the SPX -- for the last 10-15 years, it's been (at the transfer to a new "front month") ~8pts. This is the second time I've noticed this -- MAR-JUN and DEC-MAR being the prior two that I can recall with surety.
We haven't seen any material rho ("interest rate") issues in a long time. I haven't dug up the equations (and don't recall them off the top of my head), but I suspect that the futures are gaining value because they are *suspected* of being in a higher interest rate regime than the current. By how much? Well, I'll start by backing out ~6pts of ES worth out of 2440 or so, and aim that over 3 months. I don't know, but it makes sense to me. (Enough to be my straw man.)
We haven't seen any material rho ("interest rate") issues in a long time. I haven't dug up the equations (and don't recall them off the top of my head), but I suspect that the futures are gaining value because they are *suspected* of being in a higher interest rate regime than the current. By how much? Well, I'll start by backing out ~6pts of ES worth out of 2440 or so, and aim that over 3 months. I don't know, but it makes sense to me. (Enough to be my straw man.)
I really didn't know there were Spy futures.
But , why Spy futures are in cntango and not in backwardation as is supposed to be.[/QUOTE]
Equity derivative contracts adjust for any dividend events during the term of the trade. Most exchange traded equity derivatives reduce the forward value by the present value of any future dividend (or other capital distributions) payments. Accordingly, if the value of the dividend exceeds the interest rate (cost of carry) then the contracts will trade backwardation.
SPY SSF futures handle the dividend risk differently. Rather than discounting the present value of the future dividend the exchange adjusts the settlement price of the contracts on the morning of ex-date by the then known value of the distribution which removes any risk of having the amount or date of the distribution incorrect. Therefore the only variable that separates the contract from the underlying price is an interest rate. In a positive time, positive interest rate environment the SSF will trade contango.
One extra note: Borrow rates when shorting equities must be taken into account. All borrow rates are a negative interest rate in calculating fair value of the related derivative and if the borrow rate exceeds the benchmark rate then the contact will trade in backwardation.
But , why Spy futures are in cntango and not in backwardation as is supposed to be.[/QUOTE]
Equity derivative contracts adjust for any dividend events during the term of the trade. Most exchange traded equity derivatives reduce the forward value by the present value of any future dividend (or other capital distributions) payments. Accordingly, if the value of the dividend exceeds the interest rate (cost of carry) then the contracts will trade backwardation.
SPY SSF futures handle the dividend risk differently. Rather than discounting the present value of the future dividend the exchange adjusts the settlement price of the contracts on the morning of ex-date by the then known value of the distribution which removes any risk of having the amount or date of the distribution incorrect. Therefore the only variable that separates the contract from the underlying price is an interest rate. In a positive time, positive interest rate environment the SSF will trade contango.
One extra note: Borrow rates when shorting equities must be taken into account. All borrow rates are a negative interest rate in calculating fair value of the related derivative and if the borrow rate exceeds the benchmark rate then the contact will trade in backwardation.
Hi
Thank you for the explanation very interesting.
spy spot= 243,44
sep15 future= 244,47
dte 99 days
So it seems the interest rate used is 1,5% , little high , is this usual ?
This is a very important difference, and you say it's not usual. What do you think.
Hi
Is there anyone who can explain why.
Thank you
Here a explanatory graph of what you said.
Is there anyone who can explain why.
Thank you
Attachments
I think your graph just put some rebar and 2x4s into my straw man.
Or, to be musical,
Rho, Rho, Rho your boat,
Interest Rate regime,
Merrily merrily merrily merrily --
Backwardation dream.