When a large dividend payment is forthcoming or if the underlying stock is difficult to borrow, the futures price may trade at a discount to the actual cash price.

Single Stock Futures (SSF) may be priced using the following formula:

Futures Price = Stock Price * (1 + (Annualized Interest Rate * Days to Expiration/365)) – Present Value of Dividends due prior to expiration.

Example: On 12/12/07 MSFT closed at $35.31 and has an expected dividend of $0.11 with an ex-date of 2/12/07 (61 days).  Assuming an interest rate factor of 4.5%, what is the 12/12/07 settlement price for the MSFT March 2008 SSF (97 days to maturity)?

$35.62 = $35.31 * (1 + (.045 * 97/365)) – ($0.11/(1 + (.045 * 61/365)))

While the High and Low Synthetic strategies are both hedged positions, the futures leg is subject to a daily cash variation of the mark-to-market gain or loss whereas the stock leg is not (mark-to-market gain or loss is reflected in account equity but there is no cash impact until the position is closed).  If, for example, an account holds a High Synthetic position and the stock prices increases significantly, the resultant variation pay on the short futures leg may erode the account’s cash balance resulting in a debit balance which is subject to interest payments.  The net effect in this example would be to reduce and potentially erase the earnings on the High Synthetic position