What Is a “Negative Basis” and What Market Condition Does It Reflect?
A negative basis occurs when the spot price is lower than the futures price (Spot Price – Futures Price < 0). This condition is known as contango.
A negative basis reflects the positive cost of carry, meaning the cost of holding the asset until the future date is positive. It is the normal market structure for assets that have storage and financing costs.
A large negative basis signals a potential cash-and-carry arbitrage opportunity.
Glossar
Market Condition
Volatility ⎊ Market condition is defined by several key factors, with volatility being a primary determinant of risk and opportunity.
Negative Basis
Basis ⎊ The negative basis in cryptocurrency derivatives, particularly options and perpetual futures, signifies a condition where the cost of carry ⎊ typically encompassing financing costs, storage expenses (relevant for physical delivery contracts), and convenience yield ⎊ exceeds the expected future spot price.
Large Negative Basis
Dislocation ⎊ A large negative basis in cryptocurrency derivatives signifies a substantial divergence between the spot price of an underlying asset and the price of its corresponding futures or options contracts, indicating potential market inefficiencies or heightened risk aversion.
Large Negative Basis Signals
Basis ⎊ A significantly negative basis, where the futures price trades at a substantial discount to the spot price, signals pronounced market stress or an overwhelming supply imbalance favoring immediate delivery.