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Ontario's middle east | If you have the basis sold and you decide to roll the contract forward it will:
In the case of a carry market, adjust your sell basis down vs the next calendar month. You didn't lose anything the day it rolled but for guys that traded back in the 90s when volatility was virtually nonexistent for long periods of time, it was often the case that we would watch Z roll off, then H would come down and trade at the Z level. That level was where the spot cash market was in equilibrium and the market would seek that out. Do that 4 times with a 7-10 cent roll and the pain is real. That is the reason I try to discourage our guys from signing up their "license to procrastinate". They are on the wrong side of the merchandising curve. They think they done something but they have managed a very small portion of their risk.
In the case of an inversion, the sell basis gets better and that is why I spout verbiage like "inversions are meant to be sold" and "A good bean is a sold bean" | |
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Basis contract
