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Strategies & Market Trends : Trading the SPOOs with Patrick Slevin!
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To: Brister who wrote (5908)7/17/2000 6:08:45 PM
From: Patrick Slevin  Read Replies (1) of 7434
 
You sort of have to know where Fair Value is, then compute a range outside of that.

So if FV is $15 then Sell programs could hit if the PREM dropped to $13.50 or Buy programs at $17.

In essence what I am saying is that if the difference between the Futures and the Cash is narrow then people Sell the Cash because the Future is priced at a discount and they Buy the Cash when the spread is wide because the Future is a Premium to the Cash.

In other words, it's cheaper to own the Future instead of the Cash if the difference between the two is close for example. Programs hit the Cash, they don't hit the Futures really. When they halt Program Trading, for example, they are halting computer driven Buy and Sell orders for baskets of stocks. They aren't halting such orders for SnP contracts.

Make sense? That's why it is kind of a misnomer when someone says there will be programs on the Open. Not possible. Not enough stocks are trading on the Open to make programs viable.
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