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Politics : Idea Of The Day

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To: Jeff Jordan who wrote (34486)	10/6/2000 10:36:21 AM
From: PMG	Read Replies (1) of 50167

<I had a need to see this relationship on a single chart here is the result...perhaps this is what you want to see also? It is a close relationship.> No, I did not mean this. You may have realized that the difference of SPX and the future converges to zero as expiration date is approaching. This is due to the nature of the future contract. A future contract is a workaround for buying the underlying index portfolio and thus saves you a lot of money while you can still profit from the changes in value form the underlying. The value of a future equals the value of e.g. 1/100th of the index portfolio plus the cost of carrying 1/100th of the index portfolio (borrow money to finance this). As the time goes by the less interest has to be paid for the loan so that at expiration the future and the index value are equal. The calculation involves the construction of the future, time and interest rate and even the tax situation of the buyers. So it would be convenient if there was a calculator. Regards, PMG

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