Where does cash strike 102 map under the simple +1 basis assumption?
Reveal the worked answer
Futures 103.
The one-for-one and fixed-basis assumptions must be stated.
Dealer Logic · DL-14 · Core
Session extremes and option-level mapping
Are nearby lines economically comparable?
What you will learn and prerequisites
- Explain the mechanism in the lesson question.
- Reproduce the worked comparison and recognize its failure case.
Read first: Why dealers hedge
A session high and an option strike can be close for several reasons, including coincidence. Before interpreting confluence, check whether the lines use the same instrument and price scale.
Cash-index strikes, ETF prices and futures quotes cannot be overlaid numerically without conversion.
Understand the mechanism
Futures/cash basis changes the relationship between two linked levels. ETFs have their own scale and distribution effects. Raw numerical proximity can therefore be a data mistake rather than a shared risk location.
After conversion, still observe rejection or acceptance. Two lines derived from the same input are not independent confirmations.
Walk through the process
Label instrument, session, time and conversion. Distinguish fixed prior extremes from developing current ones. If the dealer estimate is stale, keep that uncertainty visible.
A mapped line remains conditional on the mapping assumptions and does not become guaranteed support.
Evidence boundary
The arithmetic is original conditional teaching material, not a measurement of current dealer positions. The cited Cboe research is historical product-specific evidence, not a live inventory feed. Model outputs should remain distinguishable from observed market facts.
A worked example
In a fictional one-for-one price relationship, cash is 100 and the future is 101, giving basis +1. A cash option strike of 102 maps approximately to futures 103 at that snapshot.
If basis changes to +0.40, it maps to 102.40. The graph varies the assumed basis. It illustrates conversion, not a live cross-product trading level.
Session extremes and option-level mapping—worked comparison
Vertical: Mapped futures reference (points)
Horizontal: Assumed futures/cash basis (points)
1. Fictional example
Read the graph as a data table
| Assumed futures/cash basis (points) | Fictional example |
|---|---|
| 0 | 102 |
| 0.4 | 102.4 |
| 1 | 103 |
What would invalidate the reading?
An unadjusted strike overlay can create false confluence. Treating a developing high as a completed reference adds another inconsistency.
Check your understanding
Try the question before revealing its answer. These are reading checks, not trading certification or a site completion record.
What is the critical failure to avoid?
Reveal the worked answer
An unadjusted strike overlay can create false confluence. Treating a developing high as a completed reference adds another inconsistency.
Explain this risk before treating the example as a decision rule. A correct calculation does not guarantee a favorable market outcome.
Return to the question: Are nearby lines economically comparable? State the observed facts, the assumptions and the failure condition separately.
Sources, assumptions and downloadable script
External references support definitions and conventions. Worked scenarios and prose are original. No current quotes or dealer inventory are claimed.
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