how is the s&p 500 e-mini working ?

[imex68]

Hello Cyber fellow trader,

I will start trading the snp e-mini soon.

I am aware that " The Index represents the market value of all outstanding common shares of the 500 firms listed (share price x shares outstanding). A change in the price of any one stock influences the Index in proportion to the relative market value of that firm's outstanding shares." bla bla courtesy of the cme.com

Now what i would like to know is -
1/ the snp 500 e-mini does not "trade" by itself per se, correct ?
2/ what i mean, is the numbers of contracts does not really matter per se ?
3/ in other words, let's say for example
a/the index is trading at 1250.00 / 1250.25
b/ on the bid 1 contract, on the offer 2 bln contracts

in this scenario, if the the snp goes up , simply because one company shares fly to the roof, will the 2 bln contract be taken ?

I guess my point is the numbers of contracts do not really matter per se simply because the index is decided by the shares of the companies ? So the price action in the snp is decided by the price but not by the number of contracts ? and this why there are brokers ...

dear me, i hope i am clear in my question.:innocent:

Thank you and may the force be with you

 

[Rhody Trader]

The futures influence the shares and the shares influence the futures. There's action on both sides and the markets are highly inter-linked.

 

[PKFFW]

It is my understanding that things are like this.....

The S&P 500 is the index and is calculated like you say....the price of each company's shares go up and down, that influences the index as per their weight etc etc etc.

S&P 500 emini contract is a futures contract based on(but technically independant of) the value of the index.

What you are buying when you buy the S&P 500 emini is a futures contract and as such the supply and demand for those futures contracts will of course play a part on how and where the emini price goes.

Of course how and where the price of the emini contract moves will also be influenced by the index upon which it is based.

So as Rhody says, one influences the other that influences the other and they are both inter-related.

Cheers,
PKFFW

 

[Joey25]

Hello Cyber fellow trader,

I will start trading the snp e-mini soon.

I am aware that " The Index represents the market value of all outstanding common shares of the 500 firms listed (share price x shares outstanding). A change in the price of any one stock influences the Index in proportion to the relative market value of that firm's outstanding shares." bla bla courtesy of the cme.com

Now what i would like to know is -
1/ the snp 500 e-mini does not "trade" by itself per se, correct ?
2/ what i mean, is the numbers of contracts does not really matter per se ?
3/ in other words, let's say for example
a/the index is trading at 1250.00 / 1250.25
b/ on the bid 1 contract, on the offer 2 bln contracts

in this scenario, if the the snp goes up , simply because one company shares fly to the roof, will the 2 bln contract be taken ?

I guess my point is the numbers of contracts do not really matter per se simply because the index is decided by the shares of the companies ? So the price action in the snp is decided by the price but not by the number of contracts ? and this why there are brokers ...

dear me, i hope i am clear in my question.:innocent:

Thank you and may the force be with you

Intuitively, the futures contract is the underlying index with interest added and dividends subtracted over the time remaining of the contract.

The formula is:

F = s x [1 + (r -d)t]

where s is the index, r is the rate of interest, d is the dividend yield and t is the time to expiry.

This gives the premium you see of the futures contract over the index. As time passes and expiry date approaches, this premium will approach zero, until just before expiry they're practically identical.

Way back in my first job, I sat on an Index Arb desk where if the futures got too out of line with the index, they would, for example, buy a basket of stocks whilst simultaneously selling the equivalent amount in futures to make a risk-free profit.

It was funny to observe, as every now and then the guy would shout to the normal equity market makers "buying the basket" or "selling the basket" and they didn't appear to give a sh1t!

It's difficult to say which market moves first. Often the "tail is wagging the dog", but theoretically it should really be the stocks.

Joey

 

[Paul71]

Intuitively, the futures contract is the underlying index with interest added and dividends subtracted over the time remaining of the contract.

The formula is:

F = s x [1 + (r -d)t]

where s is the index, r is the rate of interest, d is the dividend yield and t is the time to expiry.

This gives the premium you see of the futures contract over the index. As time passes and expiry date approaches, this premium will approach zero, until just before expiry they're practically identical.

Way back in my first job, I sat on an Index Arb desk where if the futures got too out of line with the index, they would, for example, buy a basket of stocks whilst simultaneously selling the equivalent amount in futures to make a risk-free profit.

It was funny to observe, as every now and then the guy would shout to the normal equity market makers "buying the basket" or "selling the basket" and they didn't appear to give a sh1t!

It's difficult to say which market moves first. Often the "tail is wagging the dog", but theoretically it should really be the stocks.

Joey

Hi J25.

What causes the futures and cash markets to 'get out of line', enough to be able to arb the difference.

Does anyone know?

Thanks in advance.

 

[Joey25]

Hi J25.

What causes the futures and cash markets to 'get out of line', enough to be able to arb the difference.

Does anyone know?

Thanks in advance.

Hi Paul,

One possibility is that future dividends are, strictly speaking, an unknown with the market forming a best guess of what future payouts are likely to be, making the premium sensitive to earnings announcements.

The second reason, I guess, is the difference in the liquidity between the futures and the individual components which make up the index. The futures market can react almost instantly to a key economic announcement, whereas the equity market has institutional constraints with benefits conferred on the market makers?

Certainly academics have a tough time explaining inefficiencies, usually resorting to "transactions costs" it seems!

Joey

 

[Paul71]

Hi Paul,

One thing, which in a way means it isn't a "pure arb", is that d, strictly speaking, is an unknown and the market is forming a best guess of what dividend payouts are likely to be, so could overshoot and then calm down with earnings announcements.

The second reason, I guess, is probably the difference in the liquidity between the futures and the individual components which make up the index. The futures markets can react almost instantly to a key economic announcement, for example.

Joey

Thanks for the reply, J25.

 

[imex68]

Thank you

I would like to say a big THANK you to all of those who replied.:clap:

I really appreciate it.

In particular as i was not so sure if my questions made sense.

On a last thought for today ! if they depend on each other, ie index and the shares, if we go to the nuts and bolts, the index is more dependent of the shares than the opposite ? No shares market, no index , right ? :idea:

Thank you again.

 

[Joey25]

On a last thought for today ! if they depend on each other, ie index and the shares, if we go to the nuts and bolts, the index is more dependent of the shares than the opposite ? No shares market, no index , right ? :idea:

Thank you again.[/QUOTE]

I think that's a good way of putting it imex68.

Regards,

Joey

 

[imex68]

thank you Joey25.

 

[Rhody Trader]

On a last thought for today ! if they depend on each other, ie index and the shares, if we go to the nuts and bolts, the index is more dependent of the shares than the opposite ? No shares market, no index , right ? :idea:

In terms of the index being defined by the shares in it, then clearly the index is dependent upon the shares. When you're talking about index futures, though, you can't necessarily say one side is more dependent. Changes in the shares will change the index underlying the futures, and thus will eventually produce a change in the futures. At the same time, though, the process runs the other way as well. As Joey25 said, because the futures are easier to trade quickly, they will often move before the underlying stocks. The arbs will make sure the two stay in line.

 

[MO123]

Hi EveryOne:

I have a question of the dividend amount/yield below on the Fair Value formula?
How can 1 search for the current div amt/calc for nasdaq index, s&p index, dow index, russell index, s&p midcap index? Could I yahoo finance it or bloomberg....etc...

I appreciate anyone's input. Thanks

================================================================

Intuitively, the futures contract is the underlying index with interest added and dividends subtracted over the time remaining of the contract.

The formula is:

F = s x [1 + (r -d)t]

where s is the index, r is the rate of interest, d is the dividend yield and t is the time to expiry.

This gives the premium you see of the futures contract over the index. As time passes and expiry date approaches, this premium will approach zero, until just before expiry they're practically identical.

Way back in my first job, I sat on an Index Arb desk where if the futures got too out of line with the index, they would, for example, buy a basket of stocks whilst simultaneously selling the equivalent amount in futures to make a risk-free profit.

It was funny to observe, as every now and then the guy would shout to the normal equity market makers "buying the basket" or "selling the basket" and they didn't appear to give a sh1t!

It's difficult to say which market moves first. Often the "tail is wagging the dog", but theoretically it should really be the stocks.

Joey

 

[normbeef]

Dont forget that the Emini's are also 24hr contracts.. Thus other factors affect the price..

 

[MO123]

How is div amount/yield is calculated for indexes ?

Hi normbeef:

I have a question of the dividend amount/yield below on the Fair Value formula?
How can 1 search for the current div amt/calc for nasdaq index, s&p index, dow index, russell index, s&p midcap index? Could I yahoo finance it or bloomberg....etc...

The formula is:

F = s x [1 + (r -d)t]

where s is the index, r is the rate of interest, d is the dividend yield and t is the time to expiry.


I appreciate anyone's input. Thanks

================================================== ==============


Quote:
Originally Posted by Joey25
Intuitively, the futures contract is the underlying index with interest added and dividends subtracted over the time remaining of the contract.

The formula is:

F = s x [1 + (r -d)t]

where s is the index, r is the rate of interest, d is the dividend yield and t is the time to expiry.

This gives the premium you see of the futures contract over the index. As time passes and expiry date approaches, this premium will approach zero, until just before expiry they're practically identical.

Way back in my first job, I sat on an Index Arb desk where if the futures got too out of line with the index, they would, for example, buy a basket of stocks whilst simultaneously selling the equivalent amount in futures to make a risk-free profit.

It was funny to observe, as every now and then the guy would shout to the normal equity market makers "buying the basket" or "selling the basket" and they didn't appear to give a sh1t!

It's difficult to say which market moves first. Often the "tail is wagging the dog", but theoretically it should really be the stocks.

Joey

Dont forget that the Emini's are also 24hr contracts.. Thus other factors affect the price..

 

[normbeef]

Re: How is div amount/yield is calculated for indexes ?

Hi normbeef:

I have a question of the dividend amount/yield below on the Fair Value formula?
How can 1 search for the current div amt/calc for nasdaq index, s&p index, dow index, russell index, s&p midcap index? Could I yahoo finance it or bloomberg....etc...

The formula is:

F = s x [1 + (r -d)t]

where s is the index, r is the rate of interest, d is the dividend yield and t is the time to expiry.


I appreciate anyone's input. Thanks

================================================== ==============


Not sure what your asking here as the dividend yield is ever changing and but there are specialist index's (check the Standard and Poors website) that track the dividend yield..

Perhaps if you are a little clearer on what you are trying to achieve I am sure the good people here will try to help..

But I believe you might be trying to pre-empt Fair value ??? :idea:

Also what time frame are you wanting ? daily monthly ??