During the trading day, when the S&P 500 index and the futures trade simultaneously, the S&P 500 futures contract usually moves in a fair-value relationship to the S&P 500 index. But occasionally, the S&P 500 futures contract may trade above or below its fair value relationship to the S&P 500 index. Understanding the concept of fair value as it relates to S&P futures and the index itself will not influence stock or option selection. What it will do for us is to explain the driving forces behind a market open and differentiate program trading from panic selling and buying sprees which are driven by business and/or market conditions. That means if the futures are plus 5 for the morning, and the fair value number is plus 10, then stocks could actually open lower. The futures contracts are below the fair value number. Conversely, if futures are plus 30 and fair value is plus 10, futures are above fair value and stocks may open higher. Fair value is the theoretical assumption of where a futures contract should be priced given such things as the current index level, index dividends, days to expiration and interest rates. The actual futures price will not necessarily trade at the theoretical price, as short-term supply and demand will cause price to fluctuate around fair value. Since fair value is the amount you have to pay to buy the stocks corresponding to the futures, you have to adjust the value of the futures to reflect the interest paid by a theoretical investor who buys the stocks and the dividends the investor receives. Fair value is a broad measure of an asset's worth and is not the same as market value, which refers to the price of an asset in the marketplace.
Interpreting futures fair value in the premarket Our mission is to provide a free, world-class education to anyone, anywhere. Khan Academy is a 501(c)(3) nonprofit organization. theoretical futures prices is often referred to as fair value. This is the level at which futures prices should be expected to trade, albeit not necessarily where they will trade relative to the spot index value. = ℎ -−. / The fair value of a stock index futures contract is Understanding S&P Futures Basis Trades, aka Index Arbitrage. Dec. 14, 2010 4:42 PM ET we want to know how the futures are trading versus their "fair value." The fair value of the futures vs Fair value provided by IndexArb.com. US stock futures dropped 5% Sunday evening, hitting the "limit down," meaning they can't fall any further. More. What's Moving Pre-Market.
When referring to "fair value" one is simply taking the present value of the S&P 500, or cash, and factoring in the borrowing costs to own all of the stocks in the index, dividends and difference
When referring to "fair value" one is simply taking the present value of the S&P 500, or cash, and factoring in the borrowing costs to own all of the stocks in the index, dividends and difference Fair value is a tool used by investors to understand the relationship between the value of futures contracts and the current price of a stock. The term is used in pre-market hours to help forecast the direction of the market. Any differences are used by sophisticated investors to create arbitrage opportunities.
VIX Futures Fair Value. Those of you who are familiar with stock index futures will know that the fair value of the futures is derived from the cost-of-carry The formula to calculated the fair value of the S&P 500 futures contract is derived by taking the current S&P 500 index cash value multiplied by [1+interest rate (x/ Fair Value. The futures price is based on the current supply and demand for the futures contract. Since futures continue trading after stocks close, it is not Oct 10, 2014 Calculating Fair Value. These two differences between the S&P 500 and S&P 500 futures mean that an adjustment must be made to the value of