Can someone explain the S&P futures vs Fair Value, and some of the ways it's used to interpret the market? For example, this morning prior to the open, it was quoted as: 6:22 AM -1.3 8:00 AM -0.7 8:20 AM -0.7 8:40 AM -0.1 8:55 AM +0.8 9:15 AM +0.6 (these were CST, by the way) How do traders interpret this? Is this the futures value relative to the cash? What information does this give us? Thanks for any help!
Is based upon interest rates, dividends in the S&P 500, etc. The actual premium of the futures contract swings around because of the sentiment in the marketplace which of course is determined by market participants. Program traders will execute stock-index arbitrage, simultaneously purchasing futures and selling a basket of S&P stocks ( the cash ) if their quantitative models are telling them that there is an advantage to doing so. This usually occurs when the futures are trading at a decent "discount" to the SPX cash index. Also, this arbitrage strategy can occur in just the exact opposite direction, selling the futures and buying the "cash" should they see that the futures are trading at a "premium" that is above and beyond what their computer models are telling them that fair-value is. The above is a rather simplistic example, but I hope it helps.