- Posting this here. About long and short hedges. https://www.bionicturtle.com/forum/...short-hedges-hull-chapter-3.10546/#post-77932
- As per this thread short hedge means long basis which means that if the basis strengthens we gain. I.e. the logic is that b/c i go long the spot and sell the futures this means that I will gain if spot goes up. This isn't really true though. Lets think of it from a treasury futures contract. If I am short a treasury futures I have a treasury bond that I need to deliver. If the spot price of this bond goes up I need to deliver a higher priced bond in exchange for a lower priced futures invoice price. How am I gaining from this?
If someone could clarify this point that would be much appreciated.