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Negative price of oil

The negative price that was all over the news was the front contract for WTI (West Texas Intermediate) futures that went to -40 and had a last trade date of 21.04.2020, so today. This movement was ...
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16 votes

Pricing Treasury futures

Treasury futures are actually really complicated... There are complete books dedicated to this topic (e.g., The Treasury Bond Basis) and really good sell-side research papers ("Understanding Treasury ...
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13 votes
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When Fed stops QE, Treasury Futures will go down in price, so... LEAP Puts are a good idea?

Not saying this trade won't work, but there's certainly no guarantee that it will... Given that QE will stop in October is well teleported at this point and has been expected since last year, you'd ...
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13 votes

Theoretical limits for contango and backwardation

This is a basic fact about futures trading and the storage of commodities. The phrase that was used by futures traders in the old days (and probably still today) was "the contango is limited by the ...
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  • 9,077
13 votes
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Convexity Adjustment for Futures

We assume that, under the probability measure $Q$, \begin{align*} dS_t &= S_t\big(r_t dt + \sigma dW_s(t)\big),\\ dr_t &= -k\, r_t dt + \alpha dW_r(t),\tag{1} \end{align*} where $d\langle W_s(...
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11 votes

How does one estimate the probability of the Fed increasing its benchmark rate based on Fed funds futures?

There is actually a lot of art involved. The most simplistic framework is as follows: The first step is to obtain a list of FOMC meeting dates. These are available currently for 2015 and 2016 here. ...
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11 votes
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Bond ETF vs Bond Future for longer term holding

This is a surprisingly complicated question that encompasses many moving parts. Without knowing exactly what your objectives are, it's a bit difficult to offer concrete advice, so I'll provide some ...
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11 votes
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How to make a trading universe of liquid futures contracts

Systematically finding most liquid futures instruments Can we put together a better list than the academic articles? Yes! The lists in existing publications [1, 2] are great, but fall slightly short ...
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10 votes

Are Futures exactly Delta One?

Forward delta is 1 (defined as change in the value of the forward with respect to an instantaneous change in the price of the underlying, holding everything else constant). However for a meaningful ...
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10 votes
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Why are futures valueless?

I will talk about equity futures. Commodity futures can be slightly different, as I briefly point out. Equity futures are standardised exchange-traded instruments. Futures on stock indices are ...
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10 votes
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Large trend-followers: why use futures rather than ETFs?

Leverage: futures usually require much lower margin than their ETF counterparts. For example /ES (E-mini S&P 500 futures) requires about \$4K overnight maintenance margin per contract (may vary by ...
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9 votes
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How is this probability (45%) of Fed raising rates 3 times in 2017 calculated from Fed Funds market?

Using the following data from 12/18/16: Jan 2017 Fed funds futures =9936, Jan 2018 Fed Funds futures =9877 implies that 99.36-98.77 = 59bp of hikes are built in for 2017. IF you assume the only two ...
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9 votes

Price of bond future, given a specific interest rate?

Treasury bond futures are surprisingly complicated - this is an attempt at a short explanation, it will obviously gloss over some details, but hopefully gives you a flavour of how they are priced. ...
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9 votes
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Determine the carry of a treasury bond futures contract?

Based on the your comments, I believe the issue lies with what you consider to be "carry." The reality is that there's no consensus. So let's take mini steps. We'll start with what rates guys ...
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9 votes
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What is the appropriate benchmark for a Long/Short VIX futures strategy?

If your strategy truly has no directional bias, then the benchmark should be cash (ie whatever you would earn using the capital in your trading account and taking no risk).
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9 votes
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When would open interest equal trading volume?

Futures are in "zero net supply", or "for every long there is a short", which means that at any time there are investors who are long a certain number of contracts and other investors who are short an ...
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  • 9,077
9 votes

Setting the record straight on contango and backwardation in futures markets

Both charts are right in their own way. The second chart shows the shape of the Curve of Futures Prices at a point in time (for ex: today at 10am). In Contango far away futures contracts are priced ...
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8 votes
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Why is the VIX futures market usually in a state of contango?

Your questions about contango in VIX futures have close analogies in options too. The Black & Scholes model suggests that all time frames and all strikes should have the same implied ...
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8 votes

Why is the VIX futures market usually in a state of contango?

Your question is an important one, but I am not aware of any particularly satisfying answer. There are several papers on this issue -- see Luo and Zhang 2009 and Zhang et al 2010, just for example. ...
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8 votes

Why is the VIX futures market usually in a state of contango?

VIX is a measure of volatility -- something that changes explicitly with uncertainty. The chances of uncertainty arising tomorrow, is lower than the chances of uncertainty increasing in the longer ...
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8 votes
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Why not just be long VIX and wait for the next volatile period?

Put simply, VIX is a spot index (fair value to a variance swap on SPX of constant maturity) that you cannot own as a security. Market participants create futures for you to trade. Futures trade higher ...
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8 votes
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Why are FRA/futures convexity adjustments necessary?

This has been posted a few times now, so I will invest the time on a full response. FRA / Futures convexity has nothing to do with profits/losses being immediately recognised on the future through ...
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7 votes
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A proof that the final payoff on a futures contract is twice that on a forward contract

This part of your post In addition, on expiry day the holder (...) is wrong. [Short Story] Due to the daily variation margins calculated by the clearing house on each market close, you have ...
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7 votes
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Cost of rolling futures contracts

Personally I hate the term "roll cost" and prefer "roll yield" or "effect of rolling". It is not really an out of pocket cost (it involves no outlay or receipt of cash). It has to do with contango ...
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  • 9,462
7 votes
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How to trade interest rate futures calendar spread?

Trading bond futures calendar spread is actually a very involved exercise, with many moving parts. But first things first, recall that bond futures price is approximately: $$ F = \text{spot price} - \...
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7 votes
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ICE futures settlement prices change with zero volume and zero OI

These contracts follow standard ICE procedures for calculating settlement prices, which can be found in section 2.4.6 of this document. A high-level overview of the procedure is -- An 'anchor' expiry ...
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  • 5,628
6 votes

Are Futures exactly Delta One?

I think there is confusion around the forward price and the value of a forward contract. A forward contract obligates an exchange of an asset at some future time $T$. By convention, this forward ...
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6 votes
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How can index futures trade 24/7 when the index doesn't change?

Theoretically "information" about stock prices is still arriving (including information about developments outside the United States) and the futures market is doing its best in estimating what the ...
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  • 9,462
6 votes

How to get historical data for expired futures contracts in IbPy?

After some research and reading the source, I found there is a field in the Contract class called: m_includeExpired. Set this to True and you can get data for expired contracts.
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  • 211
6 votes

CME gold futures, do expiries follow any rule?

The rules are pretty straightforward. I keep this rulebook on my office computer as a reference but it can be found on the CME website in the NYMEX area I believe. Below is straight from the ...
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