ES,SPY and NQ,QQQQ arbitrage

Discussion in 'Strategy Development' started by Mitsushiro, Nov 25, 2009.

  1. Hello is there anyone here that trades the fair value arbs on above markets by system?

    I'm having a little bit of a problem with the calculations for fairvalue, buythreshold and sell threshold.

    I read a couple od articles about this strategy, and it said I need SPX(planing to switch this to SPY), ES, MID, OEX data, risk free rate and number of days to end for the contract.

    Actually what is MID and OEX?

    How do I actually calculate the fair value and overrated,underrated value??

  2. There's a few ways to do this. One is by regressing a relatively short time period of several different lengths onto closing prices to get an overall trend and aggregating the values together. Or, calculate the fair value of the option on any call by using implied volatility. The most effective way is by subscribing to the S&P's data service that will calculate the value of the futures contract and subsequent cash value in real time. Some programming is required, but the main use is in calculating the <b>exact weights</b> of each security in the index on the fly. Expensive, and usually for institutions, but effective.