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What is the relationship between stocks and stock index futures?

Public Comments

1. The Broker makes Money! The Brokerage house makes money! The Investor... 2 outta 3 ain't bad!
2. Stock index values are derived from stock prices. Stock index futures prices are derived from stock index values. That makes stock index futures a derivative of a derivative of stocks, sometimes called a compound derivative.
3. I'm not sure if you're asking how to calculate the premium, what the premium is, what the formula is, what the formula means, what the components mean; this really is a perplexing and general question that is unanswerable as stated. What is it you don't understand about the relationship? The index futures were derived to track an index, because you can't trade an index directly. At expiration, the futures will trade at exactly the index price. Until expiration, there's an implied volatility and cost of carry built into the premium or discount of the futures, but what's not to understand there? Here's an explanation of what it is. http://en.wikipedia.org/wiki/Stock_index_futures