e-mini question

Discussion in 'Index Futures' started by assamese, Oct 30, 2009.

  1. assamese



    Typically commodity futures prices go up as you look further out to latter dates, so, for example, crude-oil dec price is higher than nov. However, in e-mini futures, it is the opposite. Can somebody tell me why is it so ?
    Thanks in advance. - Sanjay
  2. Nothing is typical in the futures markets...
    The out months are higher for crude because the expectation is of higher prices in the future.... if out months were lower...the future is bearish (which occured during the hard market decline)

    The Emini future contracts (outmonths) are lower because the expectation is of a lower ES price....one would assume.

    Another way to look at it is that the ES current contract has more trading demand (long or short) then outer months....

    But ultimately, this is up to you on how you view the markets....your perception.
  3. assamese


    I have to disagree with your views on this, because:

    1. future-price is typically spot-price PLUS carrying-cost ie. interest-rate, so, ONLY in exceptional situations, the far-dated crude futures will be cheaper than the near-dated ones.

    2. Most analysts are bullish about S&P in the next 3-9 months, so, it does not make sense (according to your logic) that far-dated e-mini contracts are cheaper than the current ones.
  4. As was stated: YOUR perception.

    1) FUTURES price is "typically" based on the anticipated and/or perceived FUTURE spot-price, carry-cost, interest-rate, supply, demand, inventory, weather, geo-politicals, etc etc. It does not make sense these variables would remain stationary based on a current value into perpetuity.

    2) Analysts and/or other conflict-of-interest based, media-centric soothsayers are not traders. Moreover, there are MANY "investment" instruments and vehicles other than futures, that are more suited and better understood by analyst followers.
  5. I am certainly no expert, but to agree with what was said previously, I believe the only difference in price between a futures contract and the cash market is strictly carry costs, for index futures this is based of the 3-month T-Bill and the number of dividend periods.

    Now obviosly futures contract's are a traded security and follow the simple rule of supply and demand in the free market for them, but they are very well Arb'd (arbitraged) and typically return quite quickly to the "efficient" price (fair value) based on the value of the underlying cash market minus the costs of carry.

    Again, I am certainly no expert, but It is my understanding that the only differnce in price (assuming market efficiency) for lets just say the DEC 09 ES contract and the MAR 10 ES is that the MAR 10 will be discounted by the 3 month T-Bill rate in addition to deductions from dividends

    This is straight from CME

    The following formula is used to calculate fair value for stock index futures: = cash [1+r (x/360)] - Dividends

    This example shows how to calculate fair value for S&P 500 futures:

    Sept S&P 500 futures price 1157.00 pts

    S&P 500 cash index
    1146.00 pts

    Interest rate

    Dividends to expiration of futures
    3.47 pts

    (converted to S&P points)

    Days to expiration of Dec. futures
    78 days

    Fair Value of futures =
    Cash [1+r (x/360)] - Dividends

    = 1146 [1+.057 (78/360)] - 3.47


    Amount of futures overpricing =
    1157.00 - 1156.68

    .32 pts

    Dividend Yield Calculation

    S&P 500 dividend yield =

    Conversion to S&P points =
    1146.00 x .0140

    = 16 pts per year (78/360
  6. What is your point?
  7. wilson1


    The difference in price today between front month and next month out is simply the interest rate (lending rate) plus expected dividends. Low interest environment plus lower dividends can cause abnormal back month activity which shouldn't matter to you unless your trading futures vs options or cash vs futures.