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Hi Jeremy,
As far as I know trading off fair value is done by institutions who use
automated programs.
These programtraders maximise their returns by buying the futures and
selling the stocks (and the other way around) at the same time.
For example they buy the stocks and sell the futures if the spread/premium
widens to 5 and they sell the stocks and buy the futures if the
spread/discount narrows to -/- 4.
These programs that the institutions trigger tend to drive the spread back
to fair value very quickly.
How would you trade off fair value ?
Can not offer you MS-formula's but here's a definition for fair value I
once picked up from CNBC:
F = S [1+(i-d)t/360]
Where F = break even futures price
S = spot index price
i = interest rate (expressed as a money market yield)
d = dividend rate (expressed as a money market yield)
t = number of days from today's spot value date to the value date of the
futures contract.
Rgds
Frans
At 11:46 AM 7/18/2002 -0400, you wrote:
>Has anyone built a custom indicator or an Expert to compute and trade
>off fair value?
>
>Regards,
>
>Jeremy
>
>
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