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2. Basis Trading with 5-year futures Setting: Trade date = 1/24/20; settlement date = 1/27/20 Suppose that the 2% of 5/24 is the cheapest to
2. Basis Trading with 5-year futures Setting: Trade date = 1/24/20; settlement date = 1/27/20 Suppose that the 2% of 5/24 is the cheapest to deliver issue for the March 5-year note futures contract. 2% of 5/24 price Futures price conversion factor = 102-07/32nds = 119-15/32nds = 0.8544 1. What is the basis of the 2% of 5/24 in 32nds? 2. What is total carry to first delivery day in 32nds for the 2% of 5/24 assuming a 1.7% repo rate? 3. You think that it is unlikely that a switch in the cheapest to deliver 5-year may occur. In support of this, your cheapest to deliver analysis shows: 5/24 Delivery Option Value = 0.5/32nd a) What is the Option Adjusted Basis Net of Carry on the 2% of 5/24? b) Is the basis rich or cheap? Are futures rich or cheap? 2. Basis Trading with 5-year futures Setting: Trade date = 1/24/20; settlement date = 1/27/20 Suppose that the 2% of 5/24 is the cheapest to deliver issue for the March 5-year note futures contract. 2% of 5/24 price Futures price conversion factor = 102-07/32nds = 119-15/32nds = 0.8544 1. What is the basis of the 2% of 5/24 in 32nds? 2. What is total carry to first delivery day in 32nds for the 2% of 5/24 assuming a 1.7% repo rate? 3. You think that it is unlikely that a switch in the cheapest to deliver 5-year may occur. In support of this, your cheapest to deliver analysis shows: 5/24 Delivery Option Value = 0.5/32nd a) What is the Option Adjusted Basis Net of Carry on the 2% of 5/24? b) Is the basis rich or cheap? Are futures rich or cheap
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