The PREM in this discussion will refer to any of the following.

S&P Premium

nasdaq premium

cousin russell

The symbols here are based on Tradestation.

The Premium is the difference between the futures and the cash index. The calculations are basically @SP.P – $INX = SP Premium, $NQIQX – $IQX = Nasdaq Premium, $ER2IUX – $IUX = Russell Premium.

However, the actual calculation of the premium is a bit more complicated._ The PREM is calculated tick by tick, every time there is a trade of @SP.P, TS uses this value of @SP.P minus the previous value of the $INX to calculate the $spinx tick._The same procedure is used with the $INX._The values ​​for the minute bar are taken from the tick data generated for the $spinx itself._Since not all actions in the $INX open at the same time, the first few minutes of $INX will be inaccurate. Consequently, PREM will also be inaccurate until all stocks have been opened. I accommodate this by using a custom session time that opens at 8:32. _Also, as futures close at 3:15 cst while the spot index closes at 3:00 cst. any PREM delivered after 3:00 CST is incorrect.

HOW TO READ THE PREM

Rule 1

Look at the right side of the bar. Use the 1 minute chart. The maximum of the S&P 500 FUTURES (spoos) corresponds to the maximum of the prem. The low of the spoos corresponds to the low of the first.

Rule #2

Whenever there is a new high for the day on the first, it means one of two things. Either the prem goes higher or the spoos go higher or both. Every time there is a new low in the prem, either the prem is going down or the spoos are going down or both.

This may seem ambiguous, but it is just an observational fact. Consider these scenarios.

THE MARKET IS SHORT
The first reaches a new maximum. Read the height of the spoos. If the spoos did not go higher before continuing to short, a price point was created. When the spoos turn they are likely to return to the price associated with the last new high in the prem and likely go higher.

The former reaches a new low. Read the bass from the spoos. If the spoos did not go down before they started to go up, a price point was created. If the spoos turn around and go up a bit, they are likely to short again and go back to the price associated with the last new low in the prem and probably go down.

Spies hit a new low. The first reaches a new maximum (rare). It is very likely that the liquidation has ended.

THE MARKET IS RECOVERING

The first reaches a new maximum. Read the height of the spoos. If the spoos did not go higher before reversing, a price point was created. When the spoos turn they are likely to return to the price associated with the last new high in the prem and likely go higher.

The former reaches a new low. Read the bass from the spoos. If the spoos did not go down before they started to go up, a price point was created. If the spoos turn and go even higher, they are likely to go short and return to the price associated with the last new low in the prem and probably go lower.

Spoos hit a new high. The first is a new bass (rare). The rally is most likely over.

Rule #3

New highs or lows in the spoos must be preceded by new highs or lows in the prem. If they are not, the market is about to change.

Reading the PREM is not a strategy per se. It’s a leading indicator and can regularly predict where the spies are going before they get there, especially when the spies seem to be doing the opposite.

The new highs and lows in the prem are, in themselves, pretty decent indications of a large institutional trading program underway, without necessarily knowing the predetermined buy and sell execution levels.

If the program trade is on, you better make sure you don’t trade in the opposite direction.

Our trading strategy takes these and other factors into account, resulting in highly accurate and timely trades. We invite you to consider our results and training course to help you become a more effective trader.