Basis = spot price-futures price.
As a forward contract, the price of futures is theoretically equal to the spot price+storage fee. In other words, the basis is theoretically negative, and the absolute value of the basis is equal to the storage fee. When the basis is negative, we call it futures premium, and when the basis is positive, we call it futures premium.
Combining industrial profit, basis and inventory, we can get three formulas:
1, futures discount+low inventory+low profit = choose the opportunity to do more.
2, futures premium+high inventory+high profit = choose the opportunity to do more.
3. Futures discount+high profit+low inventory = short opportunities.
Basic difference
Basis is the difference between the spot price and the futures price of a specific commodity at a specific time and place. Its calculation method is the spot price minus the futures price. If the spot price is lower than the futures price, the basis is negative; The spot price is higher than the futures price and the basis is positive. The connotation of basis is determined by the difference between transportation cost and holding cost between spot market and futures market.
In other words, the basis includes two components: time and space, and the transportation cost reflects the time factor between the spot market and the futures market. That is, the holding cost between two different delivery months reflects the holding cost or preservation cost of a commodity from one time period to another, including storage space, interest, insurance premium and so on.
Storage cost is the actual expenditure paid for storing goods, which generally changes with time and region; Interest is the capital cost needed to store goods, and the interest cost will change with the increase of interest rate; Insurance cost is the cost of storing goods for insurance. The basis reflecting the holding cost changes with time; The longer the time, the greater the holding cost. Since the futures contract is only deliverable, the seller should deliver the goods to the buyer after the expiration.