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Re: S&P sync



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> The S&P is open outcry and the S&P emini is electronically traded
> yet they usually manage to move together and stay within 0.25
> point of each other, even in fairly fast-moving markets. How come? 

Arbitrage.  You can effectively exchange 5 ES's for 1 SP.  So suppose 
the SP is currently at 1234.00 and the ES is at 1234.50.  You could 
buy X SP's, sell 5*X ES's, and have a risk-free profit (after costs, 
which are very low for the people/institutions doing this).  You 
could hold the long SP / short ES position until the spread moves the 
other direction, at which time you exit both positions for another 
risk-free profit.  Even if you don't, I believe you can cancel out 
the positions because they're basically the same thing, but I'm less 
sure about that.

Risk-free profit draws large money.  Large money thrown at 
aberrations like that tends to make the aberrations go away.  Why?  
Buying pressure on the SP makes it go up, selling pressure on the ES 
makes it go down, and *poof* -- the spread between them vanishes.

Gary