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Strategies & Market Trends : MP - Market Pulse -- Ignore unavailable to you. Want to Upgrade?

To: HairBall who wrote (588)	7/13/2001 5:35:34 AM
From: Louis V. Lambrecht	Read Replies (3) \| Respond to of 1328

LG - re:fair value. Uhh? I agree, a lt happens in the 15 min. between equities and futures markets close. Fair value represents the theoretical price at the futures expiration of a basket of equities representing the index. Two elements here: equities and time. And they constitue the "premium to cash". If you's hold equities till expiration, you may earn dividends. The cash used to buy these equities could have been placed in a risk free instrument (the front nonth Fed funds). Premium to cash = dividends + interests. Fair value = cash index + premium to cash. These values are used by the arbs and hedgers and do not change until the close of the equities market. Between the close of the equities market and the close of the futures 15 min. later, the FV of the next day is known and the futures trades will base on this new one. Another premium is important to check, diffused by major data feeds, the PREM (difference between the SP futures and the SP500 index) or EPREM for the eMini SP500 futures. Obviously, there is a difference between the daily premium to cash (fixed for the day) and the PREM. Positive difference (futures are traded higher than fair value of the cash). In that case an arb would sell the futures and buy the underlaying basket.Cash index goes higher. And vice versa. The zig-zag of a 1 min. PREM chart is amazing, and tells how long the arbs keep a position. I use a 30 min. average (filters the actions of the arbs): indicates, IMHO, which trend the hedgers/speculators expect from the cash index. Btw: the close of the futures trading session is not the close <ggg>. The exchange and clearing houses calculate within the next 15 minutes which fair price they would agree upon for the MOC orders: the settlement price. Settlement price has another ticker, but is the real value of the close. Most data feeds enter this value manually, soon, late or not. Explains the inconsistency between some websites. Have seen 3 pts. difference between last trade and settlement on the Naz. 3pts = $60 on a eMini Nasdaq contract. No small profits if you happen to know the right person.