Free lesson · Arbitrage

Dated cash-and-carry

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Buying spot and selling a matching dated future can replace uncertain terminal price exposure with a locked sale price, conditional on survival.

Assume one identical deliverable, no income/storage and known simple funding. Grow the spot purchase cost to maturity and compare it with the locked sale price. Add actual cash flows for assets with dividends, storage or custody costs.

Daily futures variation margin can require cash before the offsetting spot gain can be transferred. The terminal identity does not ensure the path is financeable.

Apply it in a strategy

• Compare basis trades using instrument-specific financing and delivery conventions.
• Record the input timestamp, executable quantity, currency and horizon. Reconcile the result with a cash-flow or state table.
• Stress this failure condition: Resetting finance, different settlement indexes and variation margin can invalidate the simple locked-profit story.

Research deliverable

Build and explain a dated cash-and-carry worksheet. Compare basis trades using instrument-specific financing and delivery conventions.

Evidence boundary: Synthetic arithmetic and scenarios illustrate mechanics. They are not historical returns, a paper replication, or evidence of an executable edge. Research sources and their access limitations are recorded at the end of this module.

# Python 3.10+; standard library unless NumPy is imported below.
# Inputs and outputs use the units defined in this lesson. Synthetic teaching example.
def dated_carry(spot,future,rate,years,cost):
    if min(spot,future,years,cost)<0: raise ValueError("Invalid inputs")
    return future-spot*(1+rate*years)-cost

print(dated_carry(100,104,.06,.5,.5))