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+A Complete Guide to the Futures mArket
+dividends. Thus, the interest rate cost of holding a stock position is offset (partially, or more than 
+totally) by dividend income. The presence of dividends is easily incorporated into the framework of 
+calculating a theoretical spread level. The spread would be in equilibrium if, based on current prices, 
+interest rates, and dividends, there would be no difference between holding the actual equities in 
+the index for the interim between the two spread months versus buying the forward index futures 
+contract. Holding equities would incur an interest rate cost that does not exist in holding futures, but 
+would also accrue the dividend yield the holder of futures does not receive. The theoretical spread 
+level (P
+2 − P1) at the expiration of P 1 at which these two alternative means of holding a long equity 
+position—equity and stock index futures—would imply an equivalent outcome can be expressed 
+symbolically as follows:
+PP P t id21 1 360−= 
+ 
+ −()
+where P1 = price of nearby (expiring) futures contract
+ P2 = price of forward futures contract
+ t = number of days between expiration of nearby contract and expiration of forward contract
+ i = short-term interest rate level at time of P1 expiration
+ d = annualized dividend yield (%)
+As is evident from this equation, if short-term interest rates exceed dividend yields, forward 
+futures will trade at a premium to nearby contracts. Conversely, if the dividend yield exceeds short-
+term interest rates, forward futures will trade at a discount.
+Since the dividend yield is not subject to sharp changes in the short run, for any given index 
+(price) level, intramarket stock index spreads would primarily reflect expected future short-term 
+rates (similar to gold spreads). If short-term interest rates exhibit low volatility, as characterized by 
+the near-zero interest rate environment that prevailed in the years following the 2008 financial crisis,  
+stock index spreads will tend to trade in relatively narrow range—a consequence of both major  
+drivers of stock index spreads (interest rates and dividend yield) being stable.
+ ■ Intermarket Stock Index Spreads
+As is the case with intercommodity and intermarket spreads trading at disparate price levels, stock 
+index spreads should be traded as ratios rather than differences—an approach that will make the 
+spread position indifferent to equal percentage price changes in both markets (indexes). As a reminder, 
+to trade a ratio, the trader should implement each leg of the spread in approximately equal contract 
+value positions, which, as was shown in Chapter 31, can be achieved by using a contract ratio that is 
+inversely proportional to the contract value ratio.
+For example, if the E-mini Nasdaq 100 futures contract, which has a contract value of 20 times the 
+index, is trading at 4,300 (a contract value of $86,000), and the Russell 2000 Mini futures contract,