s&p premium

Discussion in 'Trading' started by dividend, Mar 15, 2006.

  1. Does anyone have any comments on the s&p500 futures vs. cash spread? Historically (I dont have the full historical data) but on a relative basis they seem high... Thanks.
  2. It looks as though there is anticipation of market conditions..favourable conditions, uncertainty or negativity.
    On a day when econ data (or whatever the market savants are using) is poised to be favourable in the near future , the point distance might be way ahead of the cash markets whereas during uncertain times it will be nearly the same, during a time when negative info is expected the market seems to act accordingly- sometimes the tone of the news yet to be disclosed can be discerned ahead of time-no sure thing though.

    the average ?
    you'd probably have to build your own
  3. Are we talking about the spread or the PREM? The spread is wider than it has been in a while because interest rates have gone up. As for the PREM, it is right about where it should be.
  4. On a long term scale, it seems like the premiums r trending up (the ranges).

    How would you say this correlates to the volatility index? the vix is suggesting there is 'complacency' while the premiums are suggesting 'increasing risk' ... they seem to be opposing, but on second thought it makes sense that the market could see reduced volatility as increasing risk...

    Can the premiums be used as some sort of timing tool?

    Any more comments about the premiums?
  5. Ok, so the major factor that influences the futures vs cash is the interest rate...
  6. jim c

    jim c

    the prem doesnt really work that way. it doesnt take future events into consideration. it is simply the interest rate minus the dividends received. it really has nothing to do with supply/demand like other commodities. jim
  7. Are you sure you are not just looking at an increase due to the cross over from the Mar to the June index future?
  8. fhl


    My understranding is that fair value takes interest rates, time, etc, into consideration. Prem, however takes those plus supply and demand from programs, etc.
  9. jim c

    jim c

  10. ktm


    The futures value is tied to the index, which is tied to the 500 stocks that comprise the index. I'm not sure how supply/demand figures could manipulate this number over the cash index.

    Another way to think of the relationship is to take the position of one who would hold the 500 stocks vs. holding the futures. Theoretically they should be equal except for two things. The money not tied up in margin for holding stock will be earning interest and those holding stock would also be getting dividends (both for a period of three months in this case.) Interest rates have been rising, so the spread would be widening. As you'll see, the premium will gradually and steadily decrease as we approach June expiry.

    If these numbers ever got out of line, one could arb them back thru program trading. I'm sure there are computers out there who are constantly scanning the 500 stocks vs. the futures and buying and selling accordingly.
    #10     Mar 16, 2006