Finding it increasingly hard to get excited about markets where this kind of thing doesn't happen...pic.twitter.com/lXkF2suUkc
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In a situation like this, if you are able to meet all margin calls etc until expiry and assuming nothing changes about carrying costs/ interest rates (which obv are big ifs), you will still end up pocketing the basis right?
If you see a basis trading at +50bp then what you *hope* is that it goes to zero or -ve quickly so you can take the trade off and redeploy capital elsewhere, but your backstop is to hold to expiry (ie you want to earn the spread quickly but will settle for earning it slowly)
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Appreciate the insight! Just trying to understand the left tail better – seems that the main issue is the risk of being liquidated if you can't meet margin calls
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Yep, google “limits to arbitrage” for more on this.
End of conversation
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The silver fut basis is not quite like that because it was between two fut contracts (Mar/May iirc) and there is nothing that guarantees they will converge (they will both converge to spot individually, but don’t need to converge to each other before the first one expires)
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