Calculation of an index at the open

Everyday an open value for the major indices is published immediately at market open. How is this value determined given that on each day a number of stocks don’t open for minutes or even hours after the market? The settlement value for AM index options simply is not determined until all stocks are open. And then the calculation is made as if all the stocks of the index opened at the same time. Yesterday, there was a 10 point difference between the SPX settlement(SET) and the published open of the S&P 500 index. I can speculate on how the calculation is made, but does anybody know for sure? What values are used for the stocks that don’t open immediately?

This is far outside my realm of expertise, but I’m curious. Why do some index components not open immediately? I can understand that for a global index where time zones may mess stuff up, but the S&P 500? I don’t get it.

Makes for an interesting waiting game for sure. I was short some September SPX 2015 calls. Thought I had a chance when I saw the 2012 open, but the settlement was 2022. Should have covered Thursday. The rule of thumb is don’t carry a position into an AM settlement. I usually do figuring it all evens out. Yesterday still sucked.

Everyday a few stocks open late. Pending news can cause a delay I know. And unusual activity is another culprit, such as enormous order spikes. Still somewhat of an art I guess. I can’t claim expertise on the mechanics either.

I don’t know, but here are a few possibilities:

  1. The index is backed out from futures trading “fair value” calculations. Then as other stock data comes online, they shift to that. When you think about it. Second-by-second index values are also unlikely to be perfectly accurate, given that trades take time to be recorded and disseminated. When you are down to tick-level data, these kinds of delays are just part of the daily noise.

  2. If most stocks are in, but a few are missing, it’s quite possible that their effect on the index is +/- a tiny percent. Even the largest stock in the S&P 500 is only around 5% of the total value, so it would have to jump a lot from yesterday’s close value (our next best easy-to-make guess) to make a big impact on the index. Something that has 5% of the index cap and moves 10% (a lot) will still push the real value of the index up or down by 0.5% if you don’t have the data on hand.

#2 would be more problematic for small indexes like the Dow, which only has 30 stocks in it (and is price weighted, too), because missing data will have a bigger impact. I suspect #1 is what actually happens, though indexes that don’t have futures traded after hours would need to use some other method.

Hopefully you held it until today.