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/biz/ - Business & Finance

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8594692 No.8594692 [Reply] [Original]

can any1 of you brainiacs PLS explain to me why the nasdaq and nasdaq futures are so out of line when the sp500/sp500 futures and the dow/dow futures are basically at the same levels (+/- a little bit)???

what does this mean

>> No.8594872

>>8594692
There are two things that cause differences between the futures price and its underlying assets.
1. Interest rates. By buying the future, you aren't actually spending the money until expiration. Therefore, it the future should cost more by the amount of interest that you'd be able to make on that money in the mean time.
2. Dividends. The S&P index doesn't include dividends. So when a company has a dividend, you'd receive the money, but you won't end up receiving it if you're holding a future at the time it is determined. The presence of dividends before expiration make the future trade lower.

>> No.8595092

>>8594872
ok, but how does that explain why an entire index (nasdaq, ~7000) is so far off from the futures price of 6500 for june contracts when all other other indexes/futures are almost always neck-and-neck

this is pretty significant

>> No.8595184

>>8594692
Basically, the fair value of a stock index futures contract is calculated by taking the cash index, adding interest and subtracting dividends payable on the underlying stocks over the life of the futures contract. The discount today is due to the fact that interest rates are so low. As interest rates rise, the fair value calculation is impacted, and if rates get high enough, then it could get to a premium over the cash index.

This applies equally to all financial futures, except there the premium or discount is entirely due to interest rate differentials for that product over the term of the futures contract.

>> No.8595277

>>8595184
alright well i understand that; i just dont understand why such a variance is so great on a short term INDEX. like, it makes more sense on a stock or w/e but not on an index 2 months out in a stable environment

>> No.8595761

>>8595277
cuz we're about to have a big crash.
PEs have been overbought forever and the facebook catalyst is what the market needed to come to its senses