Prosper Trading Academy Blog

March 25, 2019

Option Cost Of Carry

Mathematically speaking, Cost of carry (COC) is the annualized interest percentage cost for a futures contract versus a similar position in cash market and carried to maturity of the futures contract, less any dividend expected till the expiry of the contract. Imagine you had to buy a commodity and store this for future delivery for a commitment you made- wouldn’t you charge the buyer at least the interest cost for one month applied to the cost of purchasing the commodity today plus some warehousing and other incidental costs?

In pure financial derivatives like equity, warehousing etc. is irrelevant and one only treats the difference as finance costs. Note that the real-time CoC values are available on stock exchange websites.

about the author:

Mike Shorr

Since 1994, Michael has been an on-the-floor market maker, Vice-President of Interest Rate Derivatives for Knight Financial Products and Director of Education and Options Instructor at Trading Advantage. He makes the oftentimes complex world of options and trading accessible to the novice and advanced trader alike. Michael has a Bachelor of Science degree in Statistics and Finance from the University of Illinois Champaign-Urbana. He presently is Director, Trader Education at ProsperTradingAcademy.