Beginner futures question.. I was looking at the free quotes @ http://64.240.85.226/q/eq.htm and the June contract is 1256.25 x 1257.50, but the Sep contract is 1266.50 x 1267.00. Why the difference? I thought the futures had no time premium.. Do the futures roll over early or something?
future = index * interest - dividends. 3 months more interest than June on roughly 1265 is taken into account when calculating the Sep price.
Caro --- A futures contract reflects not only the underlying value of a commodity, index or currency but also incorporates an added premium based primarily on the interest it would possible to earn if T-bills were held in lieu of the contract to its expiration. (Also, there's a slight premium added to index contracts based on the dividend yields of the underlying stocks.) This is why futures generally trade at a premium to the underlying value of the contract, and the further out the expiration date, the higher the premium (because additional interest would accrue during the extended time period.) Thus Sept S&P currently trades about 10-11 points higher than soon-to-expire June S&Ps to reflect the carrying costs of the Sept contract (the potential interest that is lost while holding the contract).