Hmmm. I've never seen the ES contract trade less than the SPX. There's always a premium, never a discount. Am I missing something?
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Using Fair Value PREMs to trade the ES
- Thread starter commanderco
- Start date
Quote from stevegee58:
Hmmm. I've never seen the ES contract trade less than the SPX. There's always a premium, never a discount. Am I missing something?
Every day there is a discount to FV of the spot. And every day there is PREM as well.
SPX = 1337.91 + FV of 9.80 = 1347.71 Futues tading at 1347.00 so a .71 DISC. You have to include FV in any computation (think of it as "cost of carry" of the individual stock, interest either paid or not received because of buying stocks vs. futures.
Don
Quote from Don Bright:
Every day there is a discount to FV of the spot. And every day there is PREM as well.
SPX = 1337.91 + FV of 9.80 = 1347.71 Futues tading at 1347.00 so a .71 DISC. You have to include FV in any computation (think of it as "cost of carry" of the individual stock, interest either paid or not received because of buying stocks vs. futures.
Don
Interesting... Curious about a hidden detail which may not interest you but have you noticed the realtime fluctuations in the FV number (ie. 9.80)? Personally, I have noted the FV to be a dynamic with respect to three components from which the value is based. 1. time (fraction of days) to maturity 2. Index Value 3. Interest Rate. As for the dividend amount, it is constant throughout the day and thus an unchanginge value. By plotting the appropriate corresponding intraday interest rate, I have found more than just a negligible fluctuations during the trading day. In most cases, the plot/chart of this value is similar to any other heavily traded instruments. I have noted FV variations by as much as +/- 1.5 for S&P and +/-30 for YM. Typically, the large vol is on fed announcement days which makes intuitive sense since the Interest Rate portion of the calculation is directly tied to the FED RATE... Curious as to what your understanding has been experience-wise.
Regards,
MAK
Quote from makosgu:
Interesting... Curious about a hidden detail which may not interest you but have you noticed the realtime fluctuations in the FV number (ie. 9.80)? Personally, I have noted the FV to be a dynamic with respect to three components from which the value is based. 1. time (fraction of days) to maturity 2. Index Value 3. Interest Rate. As for the dividend amount, it is constant throughout the day and thus an unchanginge value. By plotting the appropriate corresponding intraday interest rate, I have found more than just a negligible fluctuations during the trading day. In most cases, the plot/chart of this value is similar to any other heavily traded instruments. I have noted FV variations by as much as +/- 1.5 for S&P and +/-30 for YM. Typically, the large vol is on fed announcement days which makes intuitive sense since the Interest Rate portion of the calculation is directly tied to the FED RATE... Curious as to what your understanding has been experience-wise.
Regards,
MAK
Actually, not worth the bother since the Emini's trade in quarter point increments, and if you do the math, it's unlikely that there would be 25 cents worth of valuatioin change intraday.
I like how you think however.
Don
Quote from Don Bright:
The futures control the market...more money changes hands on the CME than the entire NYSE....so the PREM will give you triggers before you see any TS. IMO.
Don
Did you read that or just speculate about it?
1MM contracts of ES is "only" 65B ??
Also, I believe the futures "appears" to lead the cash index mostly because the futures values get reflected almost immediately while it takes several seconds (mabye 30, even) before a stock price's impact is reflected on the tape... just mechanics.
Therefore while it "appears" one could arb the spread, the actual difference between the cash index and the futures contract is smaller than it appears and really can't be arbed well. But, maybe I'm wrong...
Count in the S&P big contract. This came from the CME a few years ago, and with the added interest in all the derivatives, I'm pretty sure it still stands. The lag time certainly occurs, and the floor traders and CME members tend to hedge after a completing contracts so the lag is probably a combination of their timing and the tape "catching up".
All the best,
Don
All the best,
Don
Quote from Don Bright:
We teach our traders to keep a PREM/DISC (to FV) window at all times. Simple reasoning goes back to basics of how futures traders on the CME trade.
When Futures trade at a PREM, and the are selling (of course), when they don't get immediate reversal, they make a couple of hand signals (or mouseclicks) and theoretically buy all 500 stocks (underlying baskets, etc.). Opposite on the DISC side, of course.
This gives our equities traders a few second edge (especially when combined with the live squawk box from the CME floor) to anticipate intraday moves.
My brother says "can't trade without it". (as do I).
FWIW,
Don
hi don. looks like your brother did it again with gm. rode out a bad situation that he disclosed in the trader magazine to big profits. is he still holding gm?
Quote from vhehn:
hi don. looks like your brother did it again with gm. rode out a bad situation that he disclosed in the trader magazine to big profits. is he still holding gm?
Bailed out last week, around $32.50 or so....still short those 8000 puts, but we're feeling pretty safe with them at this point. Yes, quite a roller coaster that paid off.
Don