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Theodore, Saskatchewan | Maizeing I find it interesting that you are not fond of the basis contracts. Though when you mentioned it going from a lesson into full blown education it makes perfect sense! I think I have learned that by rolling basis contracts in a carry market. It hurts. Take your cash and play the futures separately. That being said the positive of a basis contract you also mentioned is that the elevator is responsible for the margin account.
Back to Hanorob's original question...
I was thinking of how we are actually expressing what we are trying to control
So price = basis + futures
And in this case futures are in US$ so for us canucks price = basis + futures/C$
What has guys confused on the basis is that the elevator has taken the C$ gain and shown it in the basis because US$ futures are still being used. And looking at the equation above it has to be, where else can it be shown.
So for us we are trying to control our price using 3 variables vs 2. As the C$ goes up our price must go down. But is the basis really changing?
Hanorob has a good point because if you are locking in the C$ you still need to figure out a way to decide when the basis has actually improved. Which means calculating it out this way from posted bids.
The problem I see is that being long the C$ and being long the basis can in some ways be the same thing.
Here is my bad case scenario:
Futures rally and invert so basis actually decreases. While it does this the C$ stays flat to lower. Now being long the C$, short the futures and long the basis leaves you loosing everything.
So I am thinking we need to make a decision on what variable we would really like to lock in and which we are actually willing to take the risk on. | |
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CWRS Basis
