How to Calculate the " Cost of Carry " in Real Time ?

[00fnotrade]

hi all,

first i m posting here few definitions that i found about the cost of carry from this forum itself. "my thanks to the original posters - ivanboesky ,fast_rizwaan and others

The cost of carry is the cost of "carrying" or holding a position. If long, the cost of carry is the cost of interest paid on a margin account. Conversely, if short, the cost of carry is the cost of paying dividends, or opportunity cost the cost of purchasing a particular security rather than an alternative.

The theoretical way of pricing any Future is to factor in the current price and holding costs or cost of carry.

The Futures Price = Spot Price + Cost of Carry

Cost of carry is the sum of all costs incurred if a similar position is taken in cash market and carried to maturity of the futures contract less any revenue which may result in this period. The costs typically include interest in case of financial futures (also insurance and storage costs in case of commodity futures). The revenue may be dividends in case of index futures.

Apart from the theoretical value, the actual value may vary depending on demand and supply of the underlying at present and expectations about the future. These factors play a much more important role in commodities, especially perishable commodities than in financial futures.

In general, the Futures price is greater than the spot price. In special cases, when cost of carry is negative, the Futures price may be lower than Spot prices.

F = S * exp (r*t) - D.
So, r = ln((F+D)/S)/t
Where F - Futrues price
S - spot price
r - cost of carry
t - time to expiry
D - dividends to be paid during the life of the futures contract

i want to calculate the cost of carry in two formats -
1. in Real time basis
2. in End of the day basis.

----> 1. how can i calculate the coc in real time for the given number of futures ex. nifty list of 50 stocks or any other list ?

----> which software will be better for this work, like tradestation or excel etc ?

i also read this thing somewhere

Cost of Carry is the difference between equity price and futures price. It is defined as follows.
Cost of Carry = interest to be paid to finance the underlying(equity) - income earned (eg. dividends from equity) + storage cost (only in case of commodities)

-- so if the above statement is true, then can i use " the difference between equity price and futures price ---> like reliance future - reliance stock price " as a proxy for the "Cost of Carry" is this method correct or wrong ?

--> is there anyone who could point me in the right direction, so that i PRACTICALLY know, how to calculate the cost of carry in real time.
i have seen it on cnbc they keep telling in real time, when the cost of carry has gone up for some particular counter like infosys etc., but i dont know how these guys comes to know about this coc figure changes in real time.

-- > 2. for doing the EOD analysis, i would like to know how to calculate the coc on an eod basis. i think it will be much easier then doing this stuff in Real Time.

-------
for calculating the coc - which particular data fields do we require ? like, is it sufficient just to know the cash and futures price , or do we need to keep in mind other things as well.

feel free to comment on any of the above questions, even if you yourself and not 100% sure about it.
thanks in advance

 

[sumitro]

thanx sir real help.

 

[NOMINDTR]

hi all,

first i m posting here few definitions that i found about the cost of carry from this forum itself. "my thanks to the original posters - ivanboesky ,fast_rizwaan and others









i want to calculate the cost of carry in two formats -
1. in Real time basis
2. in End of the day basis.

----> 1. how can i calculate the coc in real time for the given number of futures ex. nifty list of 50 stocks or any other list ?

----> which software will be better for this work, like tradestation or excel etc ?

i also read this thing somewhere


-- so if the above statement is true, then can i use " the difference between equity price and futures price ---> like reliance future - reliance stock price " as a proxy for the "Cost of Carry" is this method correct or wrong ?

--> is there anyone who could point me in the right direction, so that i PRACTICALLY know, how to calculate the cost of carry in real time.
i have seen it on cnbc they keep telling in real time, when the cost of carry has gone up for some particular counter like infosys etc., but i dont know how these guys comes to know about this coc figure changes in real time.

-- > 2. for doing the EOD analysis, i would like to know how to calculate the coc on an eod basis. i think it will be much easier then doing this stuff in Real Time.

-------
for calculating the coc - which particular data fields do we require ? like, is it sufficient just to know the cash and futures price , or do we need to keep in mind other things as well.

feel free to comment on any of the above questions, even if you yourself and not 100% sure about it.
thanks in advance

That's right. I don't know any commercial product to calculate cost of carry. But ICICI's active traders terminal has got a calculator to calculate fair value of futures and options. I was wondering if you can check it at some place..

Besides this, we can have an excel work sheet formula or something like that to calculate it. I don't think, calculating cost of carry in real-time is much difficult. The key lies in our understanding it in real-time, and how are going to get benefits from those calculations made.

It is a very simple fact that, cost of carry is just the difference between spot and future. So, I wonder one must have tool to calculate it?

And, as I am not well, I am afraid am I missing something in your post? Let me know if I have overlooked anything in your post because my illness prevents me to read them with much concentration, though I have logged in as a "habit"

 

[00fnotrade]

That's right. I don't know any commercial product to calculate cost of carry. But ICICI's active traders terminal has got a calculator to calculate fair value of futures and options. I was wondering if you can check it at some place..

Besides this, we can have an excel work sheet formula or something like that to calculate it. I don't think, calculating cost of carry in real-time is much difficult. The key lies in our understanding it in real-time, and how are going to get benefits from those calculations made.

It is a very simple fact that, cost of carry is just the difference between spot and future. So, I wonder one must have tool to calculate it?

And, as I am not well, I am afraid am I missing something in your post? Let me know if I have overlooked anything in your post because my illness prevents me to read them with much concentration, though I have logged in as a "habit"

First of all i prey that you get well soon.

thank you so much for your reply.
Earlier i too used to think that the cost of carry is just the difference between spot and future. But when i checked it on a few sites like idbipaisabuilder etc. then i became confused, because if u find the difference between spot and future price and then compare it with the cost of carry value given on such site, then they do not match.

you can check it out yourself from this link
http://www.idbipaisabuilder.cmlinks.com/Derivative_Market/DerivInner.aspx?id=81

so i am in a state of confusion, as what else do i need to know to calculate the cost of carry, as our simple formula does not seem to be giving the correct values for coc

with regards
fnotrade

 

[shinchan]

When NSE web site is giving Cost of Carry for every scrip in F&O, is it necessary to do the calculations ourselves? Am I missing something?

http://www.nseindia.com/

 

[00fnotrade]

When NSE web site is giving Cost of Carry for every scrip in F&O, is it necessary to do the calculations ourselves? Am I missing something?

http://www.nseindia.com/

Dear sinchan, i m looking for INTRADAY COC. and more importantly i want to know the exact formula/method for calculating it, so that i can do it myself and dont have to depend on any external website for this.

by the way, i love your name.

with regards
fnotrade

 

[fast_rizwaan]

no need to calculate, as it is already priced in.

 

[trader885]

Hi, apologies for resurrecting such an old thread, I am trying to calculate the cost of carry myself, Did you get anywhere with it? I know it isn't strictly necessary but I am curious as to how I can do it. Feel free to PM me or post.

 

[trader885]

As I understand it it is Insurance costs, Storage costs and Interest rates you could have earned had you invested the money instead.

Finding answers to some of my questions might not bring me more success as a trader but it reduces the size of the universe of unknowns which always gives me a confidence boost and should aid my trading in that way if inly a little bit.

Q) For a fungible commodity located in warehouses all over the world how can there be only one coc?

Q) Insurance and storage costs must be different in different locations in different countries.

Q) How do you get an insurance quote, do I phone an insurance company and ask for a quote for contents insurance on a warehouse full of grain? What about a warehouse full of Gold?

Q) Is storage nothing (much) more than rental fees? Again how can this be the same in all locations?

Q) Are the insurance and storage parts left out or made up and is there a convention companies use when making these costs up?

Interest rates:

This is the significant part of coc.

Q) What interest rate?
Is it the 'risk-free rate'? Is the risk-free rate US Treasuries? Is it the coupon on sovereign debt in the country in question? Is it the rate implied by 3-month Interest Rate futures? Is it an interest rate from the currency of the country where the warehouse is located? Is it the country where the exchange resides?

Motivation:

According to my ongoing studies, coc + spot will give me fair value which I can compare to actual prices to see if futures are overvalued or undervalued accordingly.

I would not be able to buy e.g., oil at spot because I have no facilities to store physical barrels of oil, however Gold is (I think) immobilised in warehouses the world over so may be do-able - I'd have to check.
Financial futures may be doable but I don't know if they have a spot market, only forward.
Equities definitely have a spot market, but I just don't know how easy it is to sell shares and hold that position for any length of time, will have to fin out.

 

[nitinkumar]

Hi,
I'm new to F&Os. I have some queries.
How to square off a posiotion in F&O.
how to calculate Implied Volatility(IV) in ODIN DIET options calculator.
Also, is IV of any help in calculationg values of options?