You believe that the spread between the September T-bond contract and the June T-bond futures contract is too large and will soon correct. This market exhibits positive cost of carry for all contracts. To take advantage of this, you should ________.

Question

Quizplus · Accepted Answer

In a positive cost of carry market, futures prices are expected to rise over time. If you believe the spread between the September and June contracts is too large and will correct, you should sell the September contract (which you believe is relatively overpriced) and buy the June contract (which you believe is relatively underpriced), expecting the spread between them to decrease.

You Believe That the Spread Between the September T-Bond Contract