basis trading


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Basis Trading

A form of arbitrage in which one buys an investment vehicle while selling or selling short a similar investment vehicle. For example, one may buy a stock while selling a futures contract on the same stock. Alternatively, one may buy a put while selling a put on the same underlying asset for a different strike price. Basis trading is advantageous when the trader believes there is price inefficiency between the two investment vehicles such that the gain on one will offset the loss on the other. For instance, in the futures contract example, basis trading can be advantageous if the price of the stock plus the cost of carry is less than the price of the futures contract that the investor sells. It is also called relationship trading.

basis trading

An arbitrage operation in which an investor takes a long position in one type of security and a short position in a similar security in an attempt to profit from a change in the basis between the two securities. For example, an investor might purchase a call with an April expiration and simultaneously sell short a call with a different expiration or strike price on the same stock. The investor expects that the values of the two positions will change over time such that a profit will ensue. Basis trading is undertaken when the investor feels one security is priced too high or too low relative to the price of another security. Because of this, the profit on one side of the trade should more than cancel out the loss on the opposite side of the trade. Basis trading may involve an index or group of securities as well as individual securities. Also called relationship trading. Compare program trading.
References in periodicals archive ?
Sowatsky has a high-level understanding of how basis trading activities flow through a grain elevator's financial statement, from both the merchandising perspective and the accounting perspective.
Together with the long-term Euro-OAT Futures which were introduced in April 2012, the contract complements the existing segment and offers market participants an efficient and cost-effective hedging instrument which enables the hedging of risks and basis trading in the mid-term maturities range of the French yield curve.
On a monthly basis trading continued the bearish trend of lower highs, as investors sold any bounces.
The court heard he had worked as a financial adviser for 15 years on a self-employed basis trading as W L Gibson and Associates but latterly working as an agent for Gloucester-based Rothschild Assurance.
for like basis trading in the group's subsidiaries, excluding Crown, showed an
To do this, however, the grain storage companies use an economic tool called basis trading to hedge their bets.
On a pro forma basis trading profits climbed more than pounds 10million to pounds 35.
Our Tolar Hub is the first ICE trading point for natural gas in North Texas and offers transparent fixed pricing, index pricing and basis trading," said Marketing Vice President John Holcomb.
Onyx provides the rates-specific algos that our most demanding clients need, from basis trading to yield curve strategies," says Jeff Jennings, Global Head of Prime Services Listed Derivatives.
Since its launch in 2009, Nodal Exchange has introduced over 3,800 cleared power contracts with over 70,000 expiries offering the largest product set of cleared contracts for power basis trading.
The new contract will provide an additional tool for basis trading, duration management, and both yield curve and credit spread trading.
Prior to Cabrera Capital Markets, he was Vice President of Futures Trading at Fidelity Investments, and previously, he was an assistant portfolio manager responsible for basis trading, liquid products and derivative hedging at MBS hedge fund Providence Investment Management, LLC.