2

Currently, the SPX is 3044.3 and the ESM2020 (JUN 2020) is 3043.50.

Can someone explain to me how the E-mini quote work? I am not asking about the profit/loss calculations but how do I assess this 3043.50 whether it being overvalued or undervalued as compared to the SPX?

1

Spot–future parity

Future Price as of Today = Index Price as of Today + Risk Free Return (Treasury Bond Yield) - Expected Dividend until Expiry

Therefore, the 0.03% difference for June contract is (Treasury Bond Yield - Expected Dividend), which is negative, meaning that Expected Dividend > Treasury Bond Yield.

To determine by youself whether ES is overvalued/undervalued requires the knowledge of "unexpected changes to dividend", and for farther expiry, the "unexpected changes to treasury bond yield".

Because if you find ES overvalued, you can buy S&P 500 actual stocks on margin borowing (at treasury bond rate if you can) then short ES, and upon expiry you will have a profit.

| improve this answer | |

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.