Can someone explain me if basis is calculated as spot – future price
Or future price- spot price
The bpp book does both and it kinda confuses me
I tend to go with Future-Spot at today’s date, giving the basis outstanding at that start. This will either show the Future being priced lower or higher than the spot. The unexpired basis is then used to show what the difference is between the Future and Spot at a later date. If the Future was higher at the start then it will be the higher value at the later date.
Hopefully that makes sense and is how I have come to understand it. I also have the BPP book and do not like how much they change the way things are calculated when the questions are very similar, certainly not student friendly.
If it helps the layout I always use is in the question practice book in the answer to question 50 (Casasophia). There is a boxed section in the answer and it comes just under the outcome. I use that for all questions.
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