OneChicago
Registered: Feb 2008
Posts: 97 |
08-29-12 10:04 PM
Quote from bigspeculate:
If I go long the ssf to capture the discount, I'm exposed to the downside. Could I hedge by shorting the next month ssf, or using options?
Very risky. To hedge a purchase of a discounted future you must get short Delta somewhere. If you choose the underlying stock you will need to borrow it and subject yourself to paying the rebate.
If you choose options or another longer dated SSF you will find similar distortions in the pricing.
The real benefit is to those who are 1. Looking to establish a long term position in the underlying stock and would like to 'purchase' it cheaper now via the discounted SSF and take delivery upon expiry. 2. Who are long the stock now and would like to capture some of the rebate priced into the SSF. This is done via an EFP transaction where you are simply swapping the relatively expensive Stock for a comparatively cheaper Delta equivalent SSF.
Be aware this may have tax implications on the sale of the stock leg. For those having the long stock position in an IRA account (which is tax exempt) and do not do so many transactions as to appear to be a business may not have a tax issue. PLEASE discuss with a tax accountant or financial advisor.
Best
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