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Posts by "macrosam"
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Posts by Anonymous "macrosam":
(note that CTD = Cheapest-to-deliver treasury that will meet the delivery stipulations of the futures contract)
(CTD Price - CTD Carry - Option) / CTD Factor
The basis net of carry is the option value, or theoretical option value.
If the basis net of carry is cheap, then the futures are rich. If the basis net of carry is rich, then the futures are cheap. Any disparities will be quickly arbed out by the market and its participants.
Add to this additional distortions that can result due to the futures contract being too cheap or too rich to the cash treasury it is referencing as the cheapest-to-deliver (i.e. may be rich since requires less cash outlay than the cash treasury, etc.).
Just a hint.
I very often agree with Ashraf's analysis and it always makes me think about factors I had not previously considered. We are truly fortunate to be able to learn from Ashraf.
The point is this is a forum where we share ideas, concerns, observations, and analysis and learn together, whether it be from each other, from Ashraf, or from the lessons the market teaches on a daily basis.
I'm also a professional institutional trade in derivatives and interest rates space with also exposure to supra/sovereign bonds. I think you don't give this forum and those who follow Ashraf enough credit.