Q&A  |  JUL 2007

Q&A by Don Bright

Q&A by Don Bright ABOUT THE PREMIUM INDEX I am from Argentina and I work in a proprietary firm. I have some questions about the premium index. First, is the premium Standard & Poor’s 500 futures – S&P 500 cash index or is S&P 500 futures – S&P 500 cash index + FV spread? I understand that the premium is S&P 500 futures – S&P 500 cash but in the web of my broker, you see that premium is S&P 500 futures – S&P 500 cash index + FV spread. Which is correct? Second, do you use only premium when breaking program levels?—Sheik Both your definitions are correct. Certain data vendors use the PREM symbol for the difference between the spot price of the S&P 500 index and the S&P futures. Our traders consider fair value in our PREM equation. We take the spot price + estimated fair value (which is basically a cost of carry calculation based on interest rates and time until expiration of the futures contract), plus or minus the futures price).

by Don Bright