The NQ's US session: 3:30 pm to 10 pm
NQ, QQQ, NDX: basis, fair value and arbitrage
Three prices quote the same basket: the NDX index (a calculation, not an instrument), the NQ future and the QQQ ETF. The gaps between them are not noise, they have a mechanism, and that mechanism explains several NQ moves the book does not show.
Basis and fair value
The future quotes above or below the index by a gap called the basis. Its theoretical value, the fair value, is the cost of carrying the basket to expiry: the interest rate on the notional, minus expected dividends. With positive short rates and low dividends on the Nasdaq, fair value is positive, of the order of a few dozen points on the front month, and it decays every day to zero at expiry.
What it changes for you:
The rest of this lesson is for students
- QQQ and its book
- What arbitrage does to the NQ book
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→ Quiz: the stocks behind the NQ