What Is the Theoretical Maximum Difference between the Spot and Futures Price?
In a contango market, the theoretical maximum difference (premium) is the full cost of carry (financing, storage, insurance) until expiration. In a backwardation market, there is no theoretical maximum limit on how far the futures price can fall below the spot price, though extreme backwardation is rare and short-lived.
Glossar
Theoretical Minimum Difference
Arbitrage ⎊ The theoretical minimum difference, within cryptocurrency derivatives, represents the smallest price discrepancy across exchanges or related instruments that facilitates risk-free profit through simultaneous buy and sell orders.
Theoretical Maximum Difference
Valuation ⎊ The Theoretical Maximum Difference, within cryptocurrency options and derivatives, represents the upper bound of potential profit attainable from a specific trading strategy, factoring in underlying asset price movements and time decay.
Theoretical Maximum Limit
Constraint ⎊ The theoretical maximum limit, within cryptocurrency derivatives, represents the upper bound of potential profit or loss dictated by the underlying asset’s price movement and the derivative’s structure, functioning as a critical risk parameter for traders.
Theoretical Maximum
Potential ⎊ The theoretical maximum, within cryptocurrency derivatives, represents an idealized price or return achievable under perfectly efficient market conditions and complete information ⎊ a benchmark rarely, if ever, attained in practice.