I hear people on financial shows talk all the time about index futures like SPY and QQQQ affecting the actual index. Can shorting these futures (in huge quantities obviously) cause the underlying stocks to be affected negatively? Or is it just an indicator of the market direction?

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2 Answers 2


There is an arithmetically calculated value for the difference, or spread, between the futures contract price and the actual cash value of the underlying stocks (in the appropriate weighting) comprising the S&P 500. This spread is a function of current short term interest rates and the time remaining until the futures contract expires. Whenever the spread is at fair value, there is no benefit from owning the futures instead of the actual S&P 500 stocks, or vice-versa. When the spread drops below or rises above fair value, by a large enough margin, then

...either stocks or futures will become more attractive than the other, and they [traders in size] will sell one and buy the other.

The spread varies all day, because the futures contract and the actual S&P 500 stocks trade independently of each other. The futures trade in Chicago at the CME (Chicago Mercantile Exchange). The underlying S&P 500 stocks trade on the NYSE in New York, a different marketplace. Supply and demand for ALL 500 stocks in the S&P index determine the cash price of the S&P 500.

Sometimes, there are short term discrepancies, which might seem to present an opportunity for arbitrage. When those discrepancies happen, and they can be due to many insignificant things e.g. the normal progression or "rolling over" of futures contract expiration dates, the spread can deviate from fair value. These differences are not large in magnitude, and the market quickly reacts removing any discount or premium. So there really isn't a chance for most investors to benefit from this sort of arbitrage.

This is the formula for the fair value of the spread:

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.

Something like zero coupon Treasury bonds versus associated interest strips presents more opportunity for mild arbitrage.

To directly answer your question, no, shorting the S&P futures won't move the underlying prices of the 500 stocks. The relationship goes in the other direction i.e. the price of the 500 stocks, with the exception of tiny variations like I described above, are what drive the price of the futures contract.

  • @FeralOink Can you or the OP summarize the link and add it to this answer, just in case it disappears? I can always do it when I have a chance later, but I figure your experience might make it easier. Commented Apr 10, 2013 at 19:15
  • 1
    @JohnBensin Done! That took forever to do! Commented Apr 19, 2013 at 0:14
  • 1
    @FeralOink Looks great to me. Commented Apr 19, 2013 at 1:34


Index ETFs are holding securities in the underlying companies, and short interest on those ETFs is part of the total demand for the underlying securities. I do not know how to measure this demand and compare it to short positions on individual stocks.

  • I'm asking about index futures though. Commented Aug 9, 2011 at 3:49

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