2007issue C071
Carry-adjusted index premium for auction execution
Convert a carry-adjusted futures premium into an implied opening print, keep the same regular-hours window when flattening into the equity close, and mark the next session’s pivot points from that window alone.
- An index premium may be left as futures minus cash or restated after the cash index is first adjusted by estimated fair value, then converted into an implied opening range that centers opening-only orders.
- Session analysis treats 9:30 a.m. to 4:00 p.m. as the futures day, so that regular-hours open, high, low, and close become the inputs for the next day’s pivot points.
- The close window after 4:00 p.m. is reserved for completing market-on-close hedges and responding to announcements just after the cash close.
- A large premium versus adjusted cash plus fair value is read as an intradayer premium signal, while a preopen futures overlay is a directional gap stance rather than a completed hedge of stock that will be supplied later.
The open, the close, and the next pivot
The historical workflow already separates the cash-index open, the equity close, and the next day’s pivot construction. Editorial: this article teaches those steps as one execution clock. Convert a carry-adjusted futures premium into an implied opening print, then keep that same regular-hours window when flattening into the close and marking tomorrow’s reference levels.
Two statements of the index premium
An index premium is the difference between an equity-index futures price and the related cash index. It may be left raw, as futures minus cash. It may also be restated after the cash index is first adjusted by estimated fair value.
Fair value is a cost-of-carry estimate that scales the cash index by financing cost minus dividends expected before the futures expire. In the historical workflow, estimated fair value is written as the cash index multiplied by one plus net carry, and net carry is financing cost minus dividends expected through futures expiration.
Center opening-only orders on the implied print
A fair-value-adjusted premium or discount is converted into an implied opening percentage. That implied opening range is used to center opening-only bids and offers around the implied print before the cash auction.
An opening-only order is a limit placed around the implied open. If a stock opens beyond those pre-placed opening bids or offers, the participant is on the same side of the opening gap as the listing-exchange specialist.
Brokers facing large opening buy interest may buy futures in the premarket as a directional overlay, expecting a gap higher. That preopen futures overlay is not a completed hedge of the stock they will later supply.
Read a large premium after the open
A large futures premium versus adjusted cash plus fair value is an intradayer premium signal. It is read as futures sellers likely buying the underlying basket to hedge, and that reading is then used to anticipate an intradayer swing.
Keep regular hours when you flatten and mark pivots
Session analysis uses 9:30 a.m. to 4:00 p.m. as the futures trading day. That regular-hours session is the window for analysis, gap measurement, and next-day pivot construction.
Activity after 4:00 p.m. is the close window. It includes futures activity toward 4:15 p.m. and is reserved for completing market-on-close hedges and responding to announcements just after the cash close.
The regular-hours open, high, low, and close from that window are the inputs used to compute the next day’s pivot points. Those pivot points are next-day references taken from the regular-hours session rather than from an extended futures session.
All readings on this track · 10 readings
- 2003Listed auction accommodation and open-book execution
- 2004Reading auction signals to choose an open, a close, or a VWAP path
- 2006A leftover clock that licenses offset-only market-at-close
- 2007Carry-adjusted index premium for auction execution
- 2008Two clocks on a public small-cap membership reset
- 2008Opening gap limits and close imbalance orders
- 2010Closing auction snapshots, fair value and pivot levels
- 2012Listed auction imbalance and market-on-close execution
- 2013Taking liquidity to offset HFT queue priority
- 2014Sizing opening and closing auction orders to volume