S&P vs Fair Value questions

Discussion in 'Index Futures' started by trader56, May 18, 2008.

  1. According to the CME Fair Value is "...the theoretical assumption of where a futures contract shuold be priced...," And that "Price discrepancies above or below fair value shuold cause arbitrageurs to return the market closer to it's fair value."

    Ok, so it seems like this could be done a couple of ways:
    If the FV is plus, then the futures could be sold to lower the plus, or the cash index could be bought. Seem right?

    Now, I'm learning to trade equities and every morning before the open, there are updates as to where the S&P is relative to fair value. Usually a plus fair value suggests a higher opening, but does this mean one might be looking for either futures to be bought or cash sold?

    What scenerios might one be one the watch for that might be of any use in trading equities, or is it that once the open takes place this FV is now meaningless?

    Thought yuo guys that trade index futures might have some good thoughts on this!

    THanks for any constructive help!
  2. Don't read too much into it. The "fair value" can fluctuate up or down independent of the trend of the underlying cash & futures. Premiums and discounts can get larger than you expect.
  3. Thanks, nazz!

    Yeah, I've never seen much in this so far - just seems to suggest where the opening might be, then all bets are off after the open.