Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.
Mr. Harrison, Critters and Professors,
Good day to you all. Something I'm wondering about this morning as I take advantage of the pop to hedge my longs by shorting the SPYs: as I write this, the S&P 500 cash index is at 1124.68 and the SPYs, which nominally trade at one-tenth the index, are bid at 113.10, asked 113.11. The QQQs are trading at 36.38, with the NDX at 1463.49. Since the QQQs allegedly "should" trade at 1/40th the index, their nominal value would be 1463.49 ÷ 40 = 36.59.
It strikes me as unusual. With both the S's and N's quite perky, one of these instruments is trading at a good premium to the underlying index; the other at a good discount. They're both liquid enough for me not to suspect either manipulation or a momentary dislocation (which would be evident by looking at the bid/asked price rather than the last trade).
So what, if anything, is one to make of this price structure, and is there anything of value here that could be used as a trading tool? Perhaps you could address this in "Minyan Mailbag."
Minyan Ben Richter
SPY goes ex-dividend once per quarter, on the futures expiration day. The trustee of the ETF accumulates all the dividends it receives during the quarter from each individual company (remember that the ETF is a trust that holds the stocks themselves) and pays out that accumulated cash on the ex-dividend date.
As that date approaches, the cash held in the trust increases. It is this cash that gives SPY the appearance of trading at a premium to its portfolio. This "premium" will increase until June 18th, at which point it reverts to zero and starts the process all over again.
Few NDX components pay dividends so the QQQ rarely holds any cash and that's why the QQQ looks more transparent.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter