Thanks! If my spelling is my worst mistake I'm doing better than I expected!

QuoteOriginally posted by: MHillThanks! If my spelling is my worst mistake I'm doing better than I expected!I wasn't correcting your spelling. I was pointing out that the CF must be included in the analysis.the invoice amount is given by Fut * CF + AI

I thought I had that with:"I then choose to go for physical settlement. I deliver 74m of bonds at fair market value (Final Futures Price * Convertion Factor + Accrued interest of CTD)."

QuoteOriginally posted by: MHillI thought I had that with:"I then choose to go for physical settlement. I deliver 74m of bonds at fair market value (Final Futures Price * Convertion Factor + Accrued interest of CTD)."apologies once again - I meant germoz's analysis.

QuoteOriginally posted by: MHillMartinghoul, if you would be so kind: Never having traded a bond future, I'd like to test if my understanding is anything like the real world.I sell 74m of contracts at the contract price. I buy 100m bonds at market value.I receive / pay margin equal to Contract Price - Futures Price. Because I have 100m of the bonds & -74m of contracts, I am fully hedged.At expiry the margin account is closed & either I lose my cash (if Futures Price > Contract Price) or receive my cash (If Contract Price > Futures Price).I then choose to go for physical settlement. I deliver 74m of bonds at fair market value (Final Futures Price * Convertion Factor + Accrued interest of CTD).I then sell the remaining 26m bonds in the market for market value.The gain / loss in my margin account should offset my loss / gain in selling my 100m of bonds.Correct... Alternatively, you could also sell some futures (you'd have to use the next maturity contract), if you find, which is often the case, that the CTD is a little tricky in the cash mkt arnd delivery. That 26MM or the small bit of futures is what people call "the tail"

I agree now!! GreatERRATA CORRIGE - I prefer A] and manage the risk at delivery to sell the Bond balance at price consistent with the future final settlement price. (rereading my old post I see my typo I wrote B] instead of A] ..my explanation was obiusly referring to 100vs77 i.e. the case where you have the balance.....sorry for confusion)

Thanks Martinghoul!