[Verse 1] When you look at futures trading every single day The price you see ain't matching what the spot price has to say There's a gap between them, and it's not by accident Three theories help explain it, let me tell you what they meant [Chorus] Insurance, hedging, storage - these are the three That make the futures price dance differently Insurance, hedging, storage - remember these names They solve the puzzle of the pricing games [Verse 2] Insurance premium theory says that futures cost you more Because they give you certainty that wasn't there before You're buying peace of mind against the price uncertainty That premium that you're paying is the cost of being free [Chorus] Insurance, hedging, storage - these are the three That make the futures price dance differently Insurance, hedging, storage - remember these names They solve the puzzle of the pricing games [Verse 3] Hedging pressure theory looks at who needs what the most If hedgers need to sell more, then the price gets diagnosed When sellers outnumber buyers in the hedging population Futures price drops lower, that's the market's compensation [Bridge] Storage costs are real costs, warehousing takes its toll Interest rates and spoilage, they all play their role Convenience yield flows back when inventory runs low Supply and demand forces make the storage premiums grow [Verse 4] Theory of storage adds up all the costs you bear Warehousing and insurance, interest hanging in the air But convenience yield subtracts when supplies are running tight Having goods on hand right now is worth more than the price [Chorus] Insurance, hedging, storage - these are the three That make the futures price dance differently Insurance, hedging, storage - remember these names They solve the puzzle of the pricing games [Outro] Now you know why futures prices move the way they do Insurance, hedging, storage - these theories will see you through
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