Comparing Stock Ownership with Futures and Calls

Summary

The document considers whether an investor who owns a stock should sell it and use a futures contract to keep similar market exposure when the future trades below the stock. Its suggested method is to compare the expected cash flows and costs of each position over the intended holding period, rather than treating the price difference alone as a reason to switch.

Relevant factors include income from lending the stock, financing costs, dividends during the holding period, and the cost of rolling futures if exposure continues across contract expiries. A deep in-the-money call is also mentioned as an alternative that can provide leveraged stock exposure. The question specifies a Hong Kong market context, but the answer does not provide market-specific rules or calculations. It offers a checklist, not a numerical comparison or a conclusion about which instrument is preferable; the investor’s financing terms, lending income, contract details, and time horizon determine the result.

Key ideas

• Compare expected cash flows and costs before replacing shares with futures.
• Stock lending income can affect the relative economics of holding the shares.
• Include financing costs and any dividends expected during the holding period.
• Account for futures roll costs when exposure spans contract expiries.
• An in-the-money call is another possible way to obtain stock exposure.

Tags

# Should I sell my stock and buy future instead if the future price is smaller than the current stock price?


# Should I sell my stock and buy future instead if the future price is smaller than the current stock price?












I am currently holding a stock.

I can see that the stock is trading at slightly above the future price.

I don't expect it to pay any dividend for a while.

Are there reasons that I should not sell my stock and then buy the future contract to retain my position? Assume I don't want to change my position.

I am trading in HK market if that matters.

## Answer by alexprice (score 2)

https://quant.stackexchange.com/a/55499

you should estimate cashflows in both cases, and to see what is more advantageous for you. The cashflows are:

```
1) borrow rate cash if your stock is lent
2) interest rate cost if you intend to hold for a long period
3) potential dividends (if your holding period encompasses ex-div date)
4) cost of rebalancing future position if you intend to have exposure encompassing several future rolling dates
```

You could also consider deep in-the-money call (you would have leveraged stock position then).

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.