why is the pre-market emini premium sometimes so high?

Discussion in 'Index Futures' started by canadian_dude, Jul 18, 2002.

  1. I have a tough time understanding the rationality for the pricing on the nasdaq emini futures sometimes.

    During the day lately, they seem to trade in the range of about a plus 3 to 5 over the cash index. Yes, sometimes they trade for a bit more or less, but it is fairly consistent.

    But during pre-market hours, I have seen HUGE premiums for the futures. Yesterday morning july 17th was thew most drastic example I have ever seen.

    At 8:15 AM EST the pre-market indicator published by the Nasdaq marketsite opened at 1024, but the futures were trading at a whopping 1038 or higher. That is a 14 point premium above the level where the cash index would be if the market were open for regular trading. This to me seems very extreme.

    And this huge premium was maintained for most of the pre-market period, slowly dropping to a premium of about 12, then 10, then 8. Finally in the last couple minutes, the pre-market indicator surged and the "normal" premium of about +5 was restored at the market opening 9:30 AM.

    But I don't quite understand why anyone would want to pay such massive premium prices on the futures in the pre-market? How can anyone justify paying up to +14 more points than the cash index, when you know the premim will eventually drop back to a level of plus 3 to 5 during regular trading hours.

    As it turned out, those that bought them in pre-market yesterday morning were rewarded, because they kept climbing, going from 1038 to about 1050, before turning back to about 1045 just as the market opened, and then rocketing upward.

    Do some experienced traders see something here that I am missing? How can you account for such a high premium sometimes during the pre-market? Are traders foolish to pay such high premiums above the (assumed level) of the cash index? Or do they know something most of us don't and are taking advantage of such info?
  2. The cash index is not updated after hours.
  3. You can't count on the Nasdaq's pre-market indicator to give you a 100% accurate view relative to how the futures are trading. The pre-market number is computed based on what's trading before the open but every stock in the index isn't trading pre-market with sufficient activity to provide a completely accurate reading.

    Consequently, it's easy to have what appears to be a big premium disparity when in fact it's just that the pre-market Nasdaq #s don't reflect the cash market completely.

    You could try comparing the QQQ bid/ask (multiplied by 40) to the futures to get an alternate read on premium. Example - @ 9am ET, the NQs were trading at 1028 and the QQQs were offered at 25.50 (which equals 1020 on the NDX cash index) for a premium of 8 points.
  4. ebner


    Futures contract is trading future price and carries a premium or discount to cash by definition.

  5. Yes, I knew that.

    I was just commenting on the fact the premium seems much higher than it should be sometimes relative to the Nasdaq 100 pre-market indicator. Someone else has commented that the pre-market indicator is not all that accurate, so that would explain the apparent discrepency I suppose.
  6. I noticed the same thing Wednesday. Wednesday seemed to be an exception, though, to the norm of the price moving towards fair value. (I've tracked the PMI the last month).

    Sorry I don't have the answers to your excellent questions. I could speculate if institutions know they or others have, say, a lot of buy orders on the open, they can buy the futures pre-market for a pretty sure profit. Your guess?
  7. My feeling is that it is because the Nasdaq futures are very thinly traded over night and it can be easily moved away from the "proper price". Whatever THAT is!