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Strategies & Market Trends : Analysis Class for Beginners

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To: posthumousone who wrote (735)	3/12/1998 1:22:00 PM
From: Arthur Tang	Read Replies (1) of 1471

Thank you, Gary. "wash" is a term to mean no gains, no losses. Tax wise, you have to watch out for changes in the law, each year. In order to use "fair value" to estimate the effect of "S&P500 futures" on the stock index price; you have to understand the way futures work. Futures contract striking price has to be straddle with index fund or shares of all S&P500 stocks. So if it is close enough then no change will be resulted on S&P500 index. S&P500 is fair value. Otherwise a basket of orders will be bought or sold to compensate for or against the striking price; thereby contract buyers or sellers will be neutralized(no money change hands). Investors just lost their contract cost. So, for S&P500 around 1000; 2.00 is fair value. If a lot of selling of S&P500 furtures contracts, and the striking price is down 10.0; which is 1% off, Futures people will sell a basket of S&P500 stocks ( one share each stock) to drive it down 10 points. That, of course, could also effect the Dow index due to liquidity change in the market.

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