/biz/ - Business & Finance

>>56469926
Sorry, I suppose that was a bit rude. Be glad you learned something today. When you buy something like SOXL and it says 1% expense ratio, that's not the only expense.

>>56469947
Ok nevermind I guess you're still confused. I'll try and explain better. When a market maker sells a contract, often they are hedging their side of the trade. Hedging a contract for the S&P requires capital invested in the 500+ tickers that make up the index. Investing that capital means loss of interest that would otherwise be gained on dollars. So, naturally, they price the futures to account for the duration of holding required and the interest that would be lost. I've attached a formula for futures pricing, and risk free rate is the R value.
Technically, it hedging may be done as options pairs forming synthetic shares. Black scholes also prices in the risk free rate, as evidenced by put values today being cheaper than calls.
Total return swaps operate essentially identically, although they don't go through an exchange. The counterparty is a bank.