The Basis: Rapid Fire
Chapters in this video
- 0:00 The sacred formula: cash minus futures
- 1:05 Strengthening versus weakening with 10 under to 5 under
- 2:48 Short hedger versus long hedger: who wins
- 3:40 Five physical drivers and convergence toward zero
- 4:52 Location trap: distance weakens the local basis
- 5:42 Financial futures: coupon income minus repo cost
- 6:52 Positive carry versus negative carry under inverted curves
- 7:14 Rapid-fire exam recap
What this video covers
- Why basis is always cash price minus futures price, and how reversing this order flips every conclusion
- How to distinguish over (positive) from under (negative), and why a negative basis is normal, not broken
- What strengthening and weakening actually describe: direction of change, not sign, so 10 under to 5 under is strengthening
- Which hedger benefits from each direction, and why the short hedger loves strengthening while the long hedger wants weakening
- Why the basis narrows toward zero into delivery, and why assuming it widens is a backwards understanding of convergence
- How distance from the approved delivery point weakens the local basis through freight absorption
- How financial futures carry works as coupon income minus financing (repo) cost, and why inverted yield curves flip carry negative
Read the full lesson, free
This video's complete written lesson is free to read in the CertFuel app, no signup wall. The complete Series 3 course also includes adaptive practice questions and spaced-repetition flashcards, free through the end of 2026.