Fair value (equity index futures)
The fair value of an equity index future is the theoretical price at which it should trade given the cash index, the financing rate, the expected dividends and the days to expiry. Comparing the futures price with it, rather than with the raw index, is how a pre-market futures move is translated into an implied move of the cash index.
Senzoukria · Glossary · Updated September 2026
Definition
Fair value is the futures price implied by carry: index level plus financing cost to expiry minus the dividends expected over the same period. It is a model output, not a traded price. The live futures price oscillates around it, and arbitrage keeps the gap small in normal conditions.
From futures move to implied index move
When commentators say futures are above fair value before the cash open, they compare the actual premium of the futures over the last index close with the theoretical premium. The difference is the move the index would need to make at the open for the two to be consistent again.
Worked example: the index closed at 5,000.00 and its fair value premium is 15.00 points. Before the open ES trades at 5,021.00, a premium of 21.00. Subtracting fair value, 5,021.00 − 15.00 = 5,006.00, so the futures imply an index level about 6.00 points above the prior close.
Why published figures differ
- Different financing rates and dividend estimates give different fair values for the same day.
- Some sources quote the premium, others the implied index level.
- Overnight, the index does not trade while the futures do, so the comparison is always with a stale cash price until the open.
- Close to expiry the carry term shrinks toward zero and fair value converges to the index.
Why an order flow trader cares
A futures chart can open far from where a cash-referenced level sits simply because of carry. Options-derived levels such as gamma walls are computed on SPX, SPY, NDX or QQQ; placing them on ES or NQ requires the live basis, which fair value approximates but does not replace. And a level carried from yesterday's cash close must be shifted by the premium to be meaningful on today's futures tape.
In Senzoukria
The application does not compute a fair value. Its GEX module reports levels on the options underlying, stamped with the spot price at the snapshot time; carrying them onto an ES or NQ footprint is the transposition described in the GEX-on-futures guide, with the basis measured from live quotes by the trader.
Common mistakes
- Reading a futures premium over the index as bullish when it is simply carry.
- Using a fair value computed for one contract month on another.
- Keeping a fixed offset between index and futures for days.
Related
In the same section
- Fair value gap
- Failed auction
- Fat tails
- Extrinsic value
- Feed status
- Expected shortfall
- Fill assumptions
- Expected move
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Frequently asked questions
- Is fair value the same as the basis?
- No. The basis is the observed gap between the futures price and the index at a moment; fair value is what that gap should be according to carry. The difference between the two is what arbitrageurs act on.
- Why does fair value change every day?
- Because the days to expiry fall by one, financing rates move and dividend estimates are revised. The carry term therefore shrinks and shifts continuously through the quarter.