Outperform the S&P

Discussion in 'Trading' started by Trend Fader, Jul 17, 2005.

  1. Assuming one has $100k in their portfolio. Cant you just buy $100k worth of ES futures on margin and take the remainder of cash and invest in short term yields.. woudlnt this guarantee a % performance better than the S&P index??

    What am i missing?

  2. The ES is priced to underperform the S&P by the amount that you gain based on the cash investments.

    It is arbitraged to that level.
  3. Yup, that's what essentially the $Premium of the futures contract is...the short term interest.

  4. IB 's owner once wrote a short essay on this ?
  5. gkishot


    But if one invests let say $10k in ES futures & other $90k in S&P 500 itself he would definetely outperform S&P 500.
  6. what is the short term interest used? 3 month T bill I suppose. In times of higher long term interest rates, you could invest the cash portion in a high yield bond fund Then use a simple timing system that in itself beats the S&P or you time the market with one contract, always in the market with the second. You can vary that ratio,add a 3d or 4th contract to use leverage depending on the type of market . Just throwing around some ideas ...
  7. You've only increased synthetic beta through gearing. Outperforms on the upside, underperforms on the downside.
  8. landboy


    It's basically leveraged synthetic indexing, a few mutual funds do this quite well. 2 times upside of the S&P, but 2 times downside the other way.

  9. Right, but synthetic indexing typically wouldn't entail any spot-position in addition to the futures position.
  10. danoXP


    #10     Jul 17, 2005