Arka Bose
Active Member
I was watching Mr Harpers video of the same, he said that the company (when in backwardation) short futures and to hedge against the same, implemented a stack and rollover approach in short term (long position) futures. Thus it was making gains (as it would in a backwardation).
He also said that the hedge was against the price of the oil rising which would mean loss on the short position.
I agree, but I am confused with the relationship of the same with basis risk.
If I am short on futures, then I am long on the basis, and thus if there is a strengthening of basis, the short position will profit, and strengthening of basis means spot price being higher than futures, isnt that contradictory?
I am confused over the link of backwardation/ contango with basis. Please help
He also said that the hedge was against the price of the oil rising which would mean loss on the short position.
I agree, but I am confused with the relationship of the same with basis risk.
If I am short on futures, then I am long on the basis, and thus if there is a strengthening of basis, the short position will profit, and strengthening of basis means spot price being higher than futures, isnt that contradictory?
I am confused over the link of backwardation/ contango with basis. Please help