Question
As discussed in class, a futures contract is typically referred to by its delivery month. For example, today's July 2021 futures contracts on a commonly
As discussed in class, a futures contract is typically referred to by its delivery month. For example, today's July 2021 futures contracts on a commonly (traded today on an exchange) are meant for delivering the commodity in July 2021 at today's July 2021 futures price.
The exchange must specify the precise period during the delivery month when physical delivery of the commodity can be made. For many futures contracts, the delivery period is typically the whole delivery month (e.g., for July 2021 futures contracts the short position can deliver the commodity to the long position on any day in July 2021).
Briefly explain that if on some day t2 during the delivery month July 2021 (e.g., t2 is July 1, 2021) the July 2021 futures price F_t2 of the commodity is greater than the commodity's spot price S_t2 on that day t2 then there might be a possibility for an arbitrage opportunity.
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