Cheapest To Deliver
Cheapest to Deliver (CTD) refers to the lowest-priced security in a futures contract that a seller can deliver to a buyer who holds a long position. It is crucial for determining the least costly delivery option for the seller in the contract. Here’s how to calculate the cheapest security that can be delivered: - For the short position (seller): CTD = Current price of the security + accrued interest - For the long position (buyer): CTD = Settlement price × Conversion factor + accrued interest The CTD is used to determine the optimal delivery option when there are multiple eligible securities that can be delivered under the terms of a futures contract.
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