futures/cash dicount spread (SP 500)

Discussion in 'Index Futures' started by larrybf, Apr 26, 2002.

  1. Right now the june 2002 futures is trading at a 4 point discount against the sp 500 cash. Not used to this. What is a good short term strategy to profit from this???
  2. It appears to me that the settlement went out close to 6pt than 4pt, but regardless, that is just the fear indication going into the weekend...there were probably a large supply of MOC sell orders and it just closed at its lows...
  3. stevet


    if i understand you correctly - you are just seeing how the futures sold off after the cash closed

    the futures can only really be considered to be at a discount or premium to the cash - when the cash market is open

    otherwise the premium or discount shoud be referred to as being in relation to the prior cash close
  4. Other than as a opening indicator, but the futures start trading on Sunday, 1/2 day before the cash, plenty of time to change it's bias a few times.
  5. The odds are you've already missed the bulk of the good profit opportunity in the futures' close well below fair value (at a discount) today. As other posters point out, a lot can happen between today's close and the reopening of futures trading on Sunday and the cash index itself on Monday. Far more often than not, when there's a big trend day (like today) and/or the futures make a big move in the last hour of regular market hours, then the 15 post-market minutes see a carry through of that trend, as bullish or bearish sentiment reaches an extreme. In those situations, the futures will often close (at 4:15) very near their highs or lows for the entire day. Hence, the best strategy is to hold long or short until the last minute or two of regular trading hours, and close out your position then, taking maximum profit without having to deal with any overnight or over the weekend shifts in news or sentiment. In other words, you should have already profited from the futures trading at a discount by holding short until 1071 or so in the last three minutes of trading, going flat then and there and keeping your powder dry for Monday's opening.
  6. thanks for the answers guys!!
  7. stevet


    in relation to seeking a profit, you could take a view that the futures were already oversold to a degree going into friday, and that the next deviation level would be the maximum deviation for this contract and the low for this contract, and since this was created without reference to the cash contract, and so fair value is at a discount to the cash close, ( due as far as we know to closing positions fast for the weekend) that as long as no bad news has occured before the globex open, that all the pressure will be for the futures to rise from this level, so with any consolidation from around this level, the risk reward for going long should be in your favour, with a 10 point rise to the next deviation level, which should provide a reasonably safe 5 points

    but watch all world news and watch for weakness, the next deviaton level is 10 pts down from which there will definetly be a bounce