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# Fair value

Discussion in 'Trading' started by PitBull, Dec 27, 2001.

1. ### PitBull

How do you calculate fair value?

2. ### gh1

http://www.stocktrendwizard.com/fairvalue.htm

Chris Terry (chartwiz212) posted this on his site

I have not used it -- so you will want to verify it yourself. I'm sure Chris can answer any questions you may have.

regards/greg

Is there a website that has the current CNBC fair value for the day?

I know of www.programtrading.com, but it is often different than what CNBC has. I know CNBC announces it, but it's rare that I'm lucky enough to catch it.

7. ### Chartwiz212

You have to put in the DATE, the EXPIRATION DATE the FUTURES PRICE THE CASH PRICE it will give you fair value

You have to Put in these prices/dates in at the close.....this will be Fair Value for the next day

8. ### Don Bright

Be sure you are aware of the difference between "long" money and "short" money for interest rates when calculating fair value. This makes a difference in buy and sell programs (at these low rates it is even more dramatic).

9. ### ArchAngel

I believe there's an error in that spreadsheet.

It's computing FV as CV * (I * Days/365) - DivRate.

So it's basically computing the fair value as cash value multipled by the interest/carrying cost for the time remaining in the contract less a nickel (the 5% index dividend that's being used as a default).

This produces too high a result. For instance it would compute a fair value premium of over 12 for the March S&P contract which as of today should only be only about 1.50-1.60.

Instead I believe the formula should be:

FV = CV * (I-DivRate) * Days/365

The net cost of carrying the underlying equities (which is what the fair value premium is) is the difference between the cost of money and the dividend realized - which is a net of around 0.65%/year right now.

The factor above and below FV premium for buy/sell program activation will be slightly different for each firm due to differences in their respective cost structures and is probably premiums between \$2.75-3.00 for buy programs and \$0.00-0.25 for sell programs today.

10. ### PitBull

Well....This is well over my head.....is there someone that can explain what fair value is and why you want it, in plain English?

//Novice

#10     Dec 27, 2001
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