Do Nasdaq Futures Above the Cash Index Signal Further Gains?
Understand the gap between Nasdaq-100 futures and the cash index through interest rates, dividends, and time to expiration. Learn to distinguish basis, quote times, and contract rolls when reading futures returns.
Nasdaq futures usually refers to futures based on the Nasdaq-100, so they should not be compared directly with the Nasdaq Composite. The price of a conventional index futures contract with a set expiration reflects financing costs and expected dividends through expiration as well as the cash index level. Futures trading above the cash index do not by themselves establish that the market expects further gains.
Match the index and the time of the price quotes
The cash index is calculated from constituent stock prices, while futures trade as separate contracts. When new information enters futures prices while the cash market is closed, the gap from the previous cash close can widen. The two numbers on the screen then do not represent market valuations at the same moment. First record the contract name and expiration month, whether quotes are real-time or delayed, and the reference price used to calculate the return. Continuous futures charts also include points where the displayed contract changes, so do not immediately explain a chart jump as a reaction to economic news.
The basis includes carrying costs
Here, basis is defined as the futures price minus the cash index. The financing cost of buying and holding the underlying stocks raises the theoretical futures price, while dividends received before expiration lower it. Actual prices can differ from theoretical values because of trading supply and demand. To assess the difference, use consistent assumptions for dividend amounts and timing, the interest rate, and time to expiration. Identifying a market price discrepancy does not produce a guaranteed profit at no cost. Trading costs and execution feasibility must also be considered.
Do not equate a futures return with your account return
Futures can provide exposure to a large notional amount through margin, and profit or loss depends on the contract multiplier and price change. Even a small index move can produce a large gain or loss relative to margin. Watching futures to understand market movements and holding a futures contract directly therefore require different judgments. Spot-quoted products and specially structured contracts may also have separate settlement rules. The simple theoretical price below illustrates a conventional contract with a set expiration; check the exchange specifications for the actual contract's multiplier, settlement, and expiration rules.
Worked example
Hypothetical example: Assume a cash index of 20,000, annual simple financing interest of 4%, 90 days to expiration, a 360-day year, and expected dividends of 40 points before expiration. The simple theoretical futures price is 20,000×(1+0.04×90÷360)-40=20,160. The 160-point premium reflects the assumed carrying costs. If actual futures trade at 20,180, the difference from theoretical value is 20 points; that amount is not automatically net profit.
What to check
- Do not confuse Nasdaq-100 futures with the Nasdaq Composite.
- Check the contract month and the time of the reference price used for comparison.
- Define the sign convention for basis first.
- Calculate profit or loss by applying the contract multiplier to the price change.
Sources and primary materials
This is educational material about research methods. For an actual company decision, verify the filings and primary sources for the relevant period.