Updated on January 30, 2024Table of Contents
The futures equivalent is a theoretical asset that has the same value and payoff structure as a particular futures contract. It is calculated by taking the current spot price of the underlying asset and adding the implied cost of carry for the contract.
Futures Equivalent = Spot Price + (Cost of Carry x Time to Maturity)
To calculate the futures equivalent, you need to follow these steps:
Suppose you are interested in a futures contract on a stock with a current spot price of $100. The cost of carry for the contract is 2%. The time to maturity is six months, which is equivalent to 0.5 years.
Futures Equivalent = $100 + (0.02 x 0.5) = $101
Therefore, the futures equivalent value for this contract is $101.
The futures equivalent is a theoretical asset and does not exist physically. It is used for theoretical purposes only.
What is the futures equivalent position?
The futures equivalent position refers to the equivalent value of a position in underlying assets, such as stocks, expressed in terms of futures contracts. It allows for easy comparison between futures and other types of holdings.
What is the futures equivalent basis?
The futures equivalent basis is the difference between the spot price of an asset and its futures price. It reflects market expectations of factors like interest rates, dividends, and carrying costs.
What is open interest in futures?
Open interest in futures represents the total number of outstanding futures contracts that have not been settled or closed. It indicates market activity and liquidity.
What is a synthetic futures position?
A synthetic futures position is created by using a combination of options (such as buying a call and selling a put) to replicate the profit/loss profile of a futures contract.
What is an example of F&O trading?
An example of F&O (Futures and Options) trading is buying a Nifty futures contract, where the trader agrees to buy the Nifty index at a future date at a predetermined price, betting on its price movement.
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