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What is the ES_F/SPX Spread?
First, let's discuss both ES_F and SPX individually.
ES_F is shorthand for the E-mini S&P 500 futures contract. It’s a derivative traded on the CME (Chicago Mercantile Exchange) that tracks the S&P 500 index. Traders use it for speculation, hedging, or to get exposure to the S&P 500 without directly trading all 500 stocks.
SPX, on the other hand, is the S&P 500 index itself.
It’s just a mathematical calculation of the weighted prices of 500 large U.S. companies. You can’t buy SPX directly (it’s not a stock or ETF), but you can trade derivatives on it (like SPX options).
So why does the ES_F price differ from the SPX price?
Futures contracts expire on a schedule (March, June, September, December). The CME lists multiple contracts out into the future, but the “front month” (closest expiration) is the most liquid. Traders roll from one quarter’s contract to the next as expiration approaches.
Example: In September, traders move from ESU (Sept. contract) into ESZ (Dec. contract).
The difference in ES_F and SPX is called “fair value,” or the basis. It comes from two main things:
1. Financing costs (carry):
Holding a futures contract doesn’t require you to buy all 500 stocks. Instead, you effectively “borrow” money to hold the exposure until expiration. That borrowing cost is based on interest rates.
2. Dividends:
If you owned the actual S&P 500 stocks, you’d collect dividends. Futures don’t pay dividends, so this reduces the futures price relative to SPX.
So the formula is roughly:
Futures Price ≈ SPX × (1 + r − d)
where r = interest rates (cost of carry) and d = dividend yield.
As we get closer to the contract expiration, the difference shrinks.
At expiration, ES_F must settle to SPX (specifically to the special opening quotation of the index).
So the difference (basis) gradually decays to zero as time runs out.
Early in the contract’s life, the gap can be larger because there’s more time for interest rates and dividends to matter.
As expiration nears, there’s less time left, so less carry, and the futures converge with SPX.
So long story short...
• SPX = the index itself.
• ES_F = futures contract tied to that index.
• Multiple contracts exist because futures have expiration dates (quarterly).
• ES_F usually trades above SPX because of interest rates and dividends.
• That gap (fair value) shrinks as expiration approaches, since the futures must equal SPX at expiration.