Being relatively new to investing and owning several mutual funds, one of which is a S&P Index fund, I was curious to know what relationship the S&P Futures numbers I see in the morning on CNBC has with the direction of the S&P Index for that day? Is there a direct correlation?
>I was curious to know what relationship the S&P>Futures numbers I see on CNBC has with the direction>of the S&P Index for that day? >Is there a direct correlation? A good place to research this is www.cme.com, which is the Chicago Mercantile Exchange website. The S&P is quoted as a cash price of the index, but when they SAY the futures price, obviously it is not the same. The futures contracts expire quarterly, so we are now trading the MARCH contract. The PRICE of the futures contract is, in simplest terms, the current CASH price, PLUS a premium for how much time is left before expiration.Ideally the futures contract would cost what the S&P will be worth AT the time the contract expires (March expiration is 3/17). If the market is going up, this is an inflated value. If it's dropping, the value responds accordingly. It is a reaction to the market, so no, there is no "Direct" correlation, only a relative expectation of how far and fast the market is moving, and how much time is left in the contract.On the last week of a contract, you can expect there is almost no time left, and the futures will be very close in price to the usual cash price that is reported. However, the idea behind trading futures is time and movement, so a week prior to the quarterly expiration most all positions are rolled forward to the next Quarter's contract. On 3/10/00 you will see a dramatic drop in volume trading the March contract as it is about to expire, and all the volume will shift to trading the June contract.The Price of the june contract will be higher because it's still 3 months ahead, and we generally expect the market to be higher in 3 months.And so it goes.AHnalyst
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