Basis:
Basis refers to the difference between the asset being hedged (i.e. spot) and the contract being used for hedging. The basis is calculated by subtracting *** from spot as follows: basis = spot
The positive or negative basis depends on the relative relationship between spot ** and ***, if spot ** is lower than ***, the basis is negative; If the spot ** is higher than ***, the basis is positive.
The market impact of the basis can be divided into three scenarios:
1.Negative basis: Under normal commodity supply and demand, the basis should generally be negative, that is, the spot ** should be lower than the *** of the commodity
2.Positive basis: When there is a shortage of commodities in the market, resulting in a shortage of supply, the spot is higher than the demand
3.Basis is zero: The closer the contract is to the delivery period, the closer the basis is to zero.
Basis is important for arbitrage and hedgers. Changes in basis can affect the effectiveness of arbitrage and hedging strategies. A narrowing or even positive basis may indicate that the market is pessimistic about the future, while a widening of the basis may indicate that the market is becoming more optimistic about the future.
Premiums and agios:
1.Contango: Refers to the fact that the spot contract is lower than the price of the contract and the near-term contract is lower than the long-term contract. This situation is called premium, which corresponds to the spot discount in the spot market.
2.Discount: refers to the **higher than **** of the spot contract, and the ** of the near-term ** contract is higher than the ** of the forward ** contract. This situation is called ** premium, which corresponds to the spot premium in the spot market. Stock Indices**