I’m doing 2022 textbook question which say that if basis is positive, a trader will make profit be selling the basis. Then explain that this means the we are selling the bond and buying the futures to profit.
I don’t understand what this means. This is from swaps, forwards and futures reading. Thank you.
Basis is different between cash price of security and price of related future.
If that is positive, then bond price is higher than implied by future on same bond, so makes sense to sell the bond as it is overpriced compared to future.
In your Level I, II a you would have done cash and carry as well as reverse cash and carry arbitrage
Thankyou kindly!