But you have to be careful bc i have read a lot of inaccurate stuff on the this board.....but there is a lot of useful stuff or there are a lot threads taht can at least direct u in the right place
LOL. isnt that the truth. All I care about is the factual info. Opinions are like Buttholes. Everybody has one and most of them stink.
Nazz and Balls - or whoever else, I am confused. 1) To calculate the cost of carry wouldnt you use the number of days from the current day until first delivery of the front month? For instance, if I am looking at May Corn on Monday (3/12/07) I would calculate using the number of days from 3/12/07 to first delivery of May corn? Or would I always use 60 days because that is the spread between May/July? 2) The spread between May/July represents the cost of carry from May to Juy correct? And the equation you have set out above calculates the cost of carry. What does this cost of carry calculation tell you exactly? What I am getting at is, how do I know when there is an opportunity to buy the spread and take delivery on May corn based on this cost of carry calculation? An example would help. Thanks in advance.
IF the spread is trading at Fair market value that you are correct in saying that it represnets full cost of carry. THere are approx 60 days between the first day of may and july so you thus for use 60 days to calculate. But once may becomes the spot month then the spread naturally declines on time decay with all other mkt factors remaining the same. so if today is 3/12/07 then u use 60 days to calculate cost of carry between trhe may july spread. however, if today was 5/15/07 then you would use 45 days bc that is how many days there are between may and july as an example.
also i thnk u are gettin consufed with the jargon march is the front/spont month may is the active month that is why u are getting confused