Not a Deleveraging?
Looking at the annualized basis across various expiries helps us ascertain how investors are bidding up certain futures. If basis jumps too high, it means a lot of traders are going long on these futures, and few are shorting them to take advantage of the basis trade. The longer out a futures’ expiry is, the higher the futures premium vs. spot, and thus the higher the basis.
Earlier this month, the Sept. expiring futures contract had run up so much that it was offering investors the best basis opportunity on the market. In hindsight, it’s clear this was a sign that the market was getting overheated in the short-term. Shorts executing basis trades weren’t able to keep up with apes longing Sept. futures contracts.