Eg: me buying Blk 155 flat. In Oct we agreed on $615 delivery price. Cash-On-Delivery on the delivery date in Feb. “Logistics”… No exposure no mkt risk.
Eg from [[hull]] P104. $40.50 delivery price means $40.50 cash to change hand on the delivery date.
Simple rule — No cash flow on execution date – different from most other trades. Simple difference yet very confusing to some.
Simple rule — To understanding the “delay”, we can imagine sky high interest, carry and inflation rates.
Simple rule – Cash-On-Delivery
I feel the delayed cashflow is at the heart of the (simple) arb and math. If we aren’t absolutely clear about this delay, big messy confusions …
EE context — yes deliver price is an important factor to PnL, risk mgmt etc
QQ context – delivery price is the price quoted and negotiated
Q: In each fwd contract, are there 2 prices?
QQ context – 1 only
EE context – 2 indeed. Similar to simply buying then holding IBM shares. Both prices are relevant in the EE context —
• K is the negotiated “execution” price, implicitly written into the fwd contract
• there’s a live market price for the same fwd contract.