Does the total spx 500 list short rebates cover futs carrying cost and then some? I dont know, but if not how does the trade make sense?
You're right but COT's alleged value is as a sentiment indicator. (or better since it's a measure of actual positions) The fact that spec selling and it's trickle down effect of program selling (basis is correctly saying that the long commercials in futs are selling stocks as a program or basis trade) is not turning stocks lower so it seemingly means that there's a persistent bid by stuck shorts. You can see it on the tape. Trouble is every index has a completely differing COT mix. Also basis, these SPX options at the CBOE have become so freakin volumous the past year it's impossible figuring out what's an MM hedge. SPX options have an OI of over 9 million contracts!
That doesn't mean commercials are net short. Are you saying the same commercials are long futures and short stock? Not sensible from a funding perspective.
A commercial by his very nature is typically "hedged" in futures opposite his position in cash. Most index "commercials" are program traders. Hence if they're buying futures below fair value from speculators (whose selling may indiscriminately push futs into program levels) then those commercial buyers of futures in turn sell the basket.
Are you saying people don't do index arbitrage? The point is that all this crap is useless. There's no predictive value to it. Short interest was probably useful in 1970. Now it's not. COT in a replicable product has *always* been useless.
Would index arbitrage contribute to open interest? I wouldn't have thought they'd be kept as an open position. Correct me if I'm wrong. You're right about the predictive value of the COT reports though.