Here’s a cheat sheet of vocabulary used in the story and by futures traders who carry contracts to physical delivery.
Arbitrage - The simultaneous purchase and sale of similar contracts in different markets to profit from temporary anomalies. A common arbitrage is trading cash vs. futures.
Basis - Difference between the spot price and the price of a futures.
Carrying Charges - Cost of storing a physical commodity throughout a period. Includes insurance and interest on the invested funds and other incidental costs.
Cash Commodity - The actual physical commodity, as distinguished from a futures commodity, or a cash settled futures contract.
Cash Market - Market for immediate delivery and payment of
Exchange For Physicals (EFPs) - A technique in which a physical commodity position is traded for a futures position.
First Notice Day - The first date on which notices of intentions to deliver actual commodities against futures are authorized. This date varies by commodity and exchange.
Last Trading Day - The final day under an exchange’s rules during which trading may take place in a particular futures delivery month. Futures contracts outstanding at the end of the last trading day must be settled by delivery, or in the case of cash settlement by an exchange of cash value differences.
Notice Day - A day on which notices of intent to deliver pertaining to a specified delivery month may be issued.
Rollover – The period when most traders who intend to remain in their positions roll their long or short positions from the contract expiring into the next delivery month. During this period open interest moves from the spot month to the second option.
Settlement Price - The daily price at which the clearinghouse clears all trades and settles all accounts between clearing members for each contract month. Settlement prices are used to determine both margin calls and invoice prices for deliveries.