One of the most frequently asked questions from viewers calling into CNBC's morning Squawk Box is  "What is Index Arbitrage Fair Value?".   Every day, CNBC gives viewers theoretical prices for index arbitrage, listing Index Arbitrage Fair Value, along with certain levels on the index arbitrage premium (PREM) that would theoretically cause index arbitrage buying or index arbitrage selling to hit the stock market.  In addition, every time that the NYSE puts collars on computer assisted index arbitrage trading, CNBC shows a graphic on your television screen that says CURBS IN.   So naturally a lot of viewers call in asking about Index Arbitrage Fair Value, wanting to know exactly what it is and what it means.  According to Professor Hans Stoll at Vanderbilt University, the formula for Fair Value is really very simple.  Of course that is easy for him to say, since he is one of the world's leading academic authorities on equities markets, listed options, index arbitrage, program trading, and a bunch of other stuff about stock markets.  Here is Professor Stoll's formula:

That's it.  Very simple.  Index Arbitrage Fair Value is nothing more than...

...the value of S&P 500 Index, plus the interest I pay my broker to buy all of the stocks in it, minus all of the dividend checks I get from those stocks.

Now that you know what FV is, you can go on to learn exactly what it means and how it works. For example, did you know that FV is basically irrelevant for most investors?  And that the theoretical levels announced on CNBC for index arbitrage buying and index arbitrage selling are totally irrelevant in the real world of trading?  So what is important? 

"Knowing exactly when index arbitrage buying or selling will hit the markets today."

If you know that, then you have an edge and are way ahead of everyone else in day trading for your own account.

And that is exactly what our Program Trading Research identifies before the markets open every day. We already know the exact premium execution level for index arbitrage buying or index arbitrage selling for today. That information is available for you free, every day, as a public service.  Simply click here for today's actual index arbitrage execution levels.  But knowing in advance, what time these levels will hit is a little harder for us to figure out. Therefore; we charge a fee for that information which is included in all of our Program Trading Research reports.

Now you can make our Program Trading Research work for you with your day trading and investments.  Just click here for additional information on how you can subscribe.  And, if you really want to learn everything about index arbitrage, FV, the premium (PREM), program buying, program selling, program trading pattern recognition, and all you need to know about computer assisted trading programs, then join us for one of our Program Trading Seminars. 

What!  You didn't get the same number that is on CNBC?  That's because they subtract the S&P 500 Stock Index price from the FV in the above formula; and, express FV as the difference.   Remember that once you figure out the Fair Value for today, it doesn't change until tomorrow.  And that it is a little less as we get closer to the S&P 500 Stock Index Futures Contract expiration in March, June, September, or December.  If you would like to see how it declines over time, then click here.  Also remember that FV and PREM are very different.