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training_data/curated/text/0a5c69b2316dc79e867c68454eebd3d8dd4e39310066cb97621bd62011b9bbe6.txt

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+558 Part V: Index Options and Futures 
+That is, he would buy back the ones he is short and sell the next series of futures. For 
+S&P 500 futures, this would mean rolling out 3 months, since that index has futures 
+that expire every 3 months. For the XMI futures and OEX index options, there are 
+monthly expirations, so one would only have to roll out 1 month if so desired. 
+It is a simple matter to determine if the roll is feasible: Simply compare the fair 
+value of the spread between the two futures in question. If the current market is 
+greater than the theoretical value of the spread, then a roll makes sense if one is long 
+stocks and short futures. If an arbitrageur had initially established his arbitrage when 
+futures were underpriced, he would be short stocks and long futures. In that case he 
+would look to roll forward to another month if the current market were less than the 
+theoretical value of the spread. 
+Example: With the S&P 500 Index at 416.50, the hedger is short the March future 
+that is trading at 417.50. The June future is trading at 421.50. Thus, there is a 4-point 
+spread between the March and June futures contracts. 
+Assume that the fair value formula shows that the fair value premium for the 
+March series is 35 cents and for the June series is 3.25. Thus, the fair value of the 
+spread is 2.90, the difference in the fair values. 
+Consequently, with the current market making the spread available at 4.00, one 
+should consider buying back his March futures and selling the June futures. The 
+rolling forward action may be accomplished via a spread order in the futures, much 
+like a spread order in options. This roll would leave the hedge established for anoth­
+er 3 months at an overpriced level. 
+Another way to close the position is to hold it to expiration and then sell out the 
+stocks as the cash-based index products expire. If one were to sell his entire stock 
+holding at the time the futures expire, he would be getting out of his hedge at exact­
+ly parity. That is, he sells his stocks at exactly the last sale of the index, and the futures 
+expire, being marked also to the last sale of the index. 
+For settlement purposes of index futures and options, the S&P 500 Index and 
+many other indices calculate the "last sale" from the opening prices of each stock on 
+the last day of trading. For some other indices, the last sale uses the closing price of 
+each stock. 
+Example: In a normal situation, if the S&P 500 index is trading at 415, say, then that 
+represents the index based on last sales of the stocks in the index. If one were to 
+attempt to buy all the stocks at their current offering price, however, he would prob­
+ably be paying approximately another 50 cents, or 415.50, for his market basket. 
+Similarly, if he were to sell all the stocks at the current bid price, then he would sell 
+the market basket at the equivalent of approximately 414.50.