Delivery Provisions
Chapters in this video
- 0:00 Basis grade: the benchmark quality at the contract price
- 1:58 Substitute grades and the squeeze protection logic
- 3:08 Premium added, discount subtracted: the direction trap
- 4:36 The short chooses: who picks the deliverable grade
- 5:30 Basis grade versus hedging basis: same word, two meanings
- 6:44 Rapid-fire exam recap
What this video covers
- The basis grade (also called par grade or contract grade): the standard deliverable quality priced at the contract price with zero adjustment
- Why exchanges permit approved substitute grades, and how this prevents market squeezes by keeping deliverable supply broad enough
- The direction of price adjustments: premiums are added to the contract price for superior grades, discounts are subtracted for inferior grades
- The calculation flow from contract price to adjustment to final settlement price for substitute-grade deliveries
- Why the short, not the long, chooses which permitted grade to deliver, and how this protects the short from being cornered
- The critical distinction between basis grade (delivery quality standard) and basis (cash price minus futures price, a hedging calculation)
Read the full lesson, free
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