What might be the reason for a futures price on a stock being much lower than the spot, i.e. stock price?

Spot = 8.30 Futures M17 = 7.45 U17 = 7.23

The company does not pay dividends.

No-arbitrage pricing would suggest negative financing cost:

F(t) = S(t) * exp((risk-free_rate - dividend_yield)*(T-t))

Can this be explained by an extraordinary demand for hedging spot positions via shorting futures?

Completing the answer with stock quotes (this is a very popular Polish company with around 6 bn USD of asset value):

https://stooq.pl/q/?s=pxm&c=10d&t=b&a=lg&b=0 8,19

https://stooq.pl/q/?s=fpxmm17&c=10d&t=b&a=lg&b=0 7,67

https://stooq.pl/q/?s=fpxmu17&c=10d&t=b&a=lg&b=0 7.45

  • 4
    $\begingroup$ Would you mind sharing which security it is? It may be helpful. $\endgroup$
    – amdopt
    Apr 4, 2017 at 16:00
  • $\begingroup$ My only guess is that the underlying currency has a high interest rate. $\endgroup$
    – user59
    Apr 7, 2017 at 17:47

2 Answers 2


Can this be explained by an extraordinary demand for hedging spot positions via shorting futures?

The answer to your question is: kind of but there is more to it. Out of curiosity I looked into this a bit after you added the company name. The answer is similar to @will answer above but it was too much to add as an edit, hence, the separate answer.

This stock has went from PLN500/shr down to single digits. Currently trading PLN~8.60. Those numbers are adjusted for a 1:50 split in 2015.

When comparing the current price of a stock to it's future price, you need to adjust spot for dividends and cost of owning the stock (search for Fair Value if an explanation is needed). Owners of this stock have not received a dividend since 2012 and are currently receiving a rebate (not being charged interest) for owning shares--i.e. Short sellers are so sure this stock is going to zero that they are willing to pay an astronomical amount for someone else to buy, hold and loan them shares. That premium for the owner (cost for the short seller) is the difference between spot and future.

This is an instance where market participants are literally saying "I wouldn't buy that stock if you paid me to!"

Though the curve has shifted a bit since your original post, the backwardation is existing because no one has any faith in this company remaining a going concern (at the moment). Oftentimes a backwardated curve can lead to an arbitrage opportunity, however, not in this case. The arb is executed by shorting spot and buying future. For an arb to exist, the current price minus the borrowing cost for a short seller must be greater than the future price--it is not. There is no arb--just a poorly managed company that no one has any faith in.

Anyone interested in the -ve rate being paid to share holders can use this formula (assume the future price = fair value price) and solve for r.



Say we are living in a world where the risk free rate is zero, and we have a stock that pays no dividends.

It's worth 100 today. It's expected value in 1 year is also 100.

Now lets introduce some risk. Let's say this stock has a 50% chance of defaulting. If it defaults, you'll get some of your money back, but not all of it.

Given this new information, would you happily agree to buy the stock a year from now for £100?

Or would you rather pay 50% * 100 + 50% * (however much you believe you can recover)?

  • 2
    $\begingroup$ This is one possibility. Another is that there is a short squeeze and the repo rate is extremely high. We'll only really know when @cykor21 tells us the underlying of the futures. $\endgroup$ Apr 8, 2017 at 0:32
  • $\begingroup$ I think of credit and repo rates as different descriptions of the same thing really. You're not going to get a good rate on lending out your stock if there's a high chance of them going to zero... $\endgroup$
    – will
    Apr 8, 2017 at 0:34
  • 1
    $\begingroup$ Remember the Volkswagen short squeeze in 2008? This was not about credit risk at all. The DAX futures was trading significantly below the spot at that time (when rates were still positive). $\endgroup$ Apr 8, 2017 at 0:40
  • $\begingroup$ Oh no no, I was just saying that the effect of credit can also manifest itself in the borrow cost. $\endgroup$
    – will
    Apr 8, 2017 at 7:10

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