Frequently Asked Questions

What is Program Trading?

The "premium" (PREM) or "spread" is the difference between the most active S&P 500 Stock Index Futures Contract (the spoos) minus the actual S&P 500 Stock Index (cash).  That difference or PREM which usually ranges between $6.00 to $-6.00, and slowly decays or rises as we reach the S&P 500 Futures Contract expiration date, is what program trading is based on. 

When the PREM difference rises to a certain level "buy" programs kick in.   Our clients then buy the stocks in the S&P 500 Stock Index on the New York Stock Exchange and sell the S&P 500 Stock Index Futures Contract against those positions on the Chicago Mercantile Exchange, if they are doing pure index arbitrage. 

When the PREM difference drops to a certain level "sell" programs kick in and our clients do the exact opposite.   But here again, only if they are doing pure index arbitrage. 

These transactions have extremely low risk because of the abnormal market differences in the PREM as traders capture those few points of profit before the PREM returns to normal and Fair Value.  

This type of program trading called index arbitrage and is very common.  But it usually accounts for less than 2.50% of all program trading activity done each day.   And therefore irrelevant for most traders.

Please be aware, that "sell" programs are used to buy stocks too.  And always on days that the INDU usually closes positive.  And that "buy" programs are be use to sell short stocks too.   And always on days that the INDU usually closes negative.  

So much so, that just knowing the PREM and the buy and sell levels is never enough if you are going to level the playing field with the best trading firms in the world.   If you would like more information about that type of program trading that runs 97.50% of the program trading volume, and the program trading research required to trade it, then simply contact us.  We will reply promptly.