Editing Program trading (section)

==Index arbitrage==
[[Index arbitrage|Index Arbitrage]] is a particular type of Program Trading which attempts to profit from price discrepancies between the basket of stocks which make up a stock index and its derivatives (such as the [[future (finance)|future]] based on that index). As of July 2012, it makes up less than 5% of the active Program Trading volume on the [[NYSE]] daily.<ref name="online.barrons" />

===Premium buy and sell execution levels===
The "premium" (PREM) or "spread" is the difference between the [[Stock market index|stock index]] [[future (finance)|future]] fair value and the actual index level. As the derivative is based on the index, the two should normally have a very close relationship. If there is a sufficiently large difference the arbitraging program will attempt to buy the relatively cheap level (whether that is the basket of stocks which make up the index or the index future) and sell the relatively expensive product, making money from the price discrepancy. The fair value calculation takes into account the time to expiration of the future contract, the dividends received from holding all the stocks, and the interest cost of buying the stocks.<ref>{{Cite web|url=http://www.investopedia.com/articles/trading/07/program_trading.asp|title = How Program Trading Strategies Work}}</ref>