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That's oil. Basically, no one was willing to take delivery of oil due to the glut at that time. "There was a price to be paid to get out of a long contract," which resulted in the negative price.
Equity futures have a different relationship to a different market. I would say, no, not by the same theory as the oil situation, anyway.
But of course, no one expected it in oil either. But I still think not.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
You just need a contagion. When a big enough firm collapses, other leveraged firms could also collapse, and on a thin enough bid, no amount of circuit breakers, velocity logic, price banding, or price limits will stop price going negative. So yes, I think there will be a day where you are trading futures priced positively, and after a few days, you have a day with negative pricing.
That would be interesting. There's no precedent for it, but I don't think there was any precedent for the oil situation either, and I remember that many people did not believe it could be possible, even at the time, when they could see it had happened.
I don't know that the sequence of events that @Arch lays out would have that effect or not, but I don't want to say that something is "impossible" when I don't know for sure. The thing is that we are not trading the actual underlying stuff (oil, S&P stocks, whatever), we are trading a derivative of the stuff, and that is different. In the case of oil, I think the cost of storage in a serious glut made people in the actual physical oil business say, "Hell no, I don't want to buy any oil, I have all this in offshore tankers that I want to get rid of, that is costing me money to hold onto" or at least something like that. So that was a unique situation.
For instance, stock prices can only go to zero. Period. But since a futures contract is not the same as the actual underlying commodity/index/whatever, there may be other factors that affect contract prices in unexpected ways. I don't want to speculate too much about what is or is not possible, after the crude oil thing last year.
Futures are risky is the takeaway.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
According to the article below, it alleges Citadel could potentially face a margin call. Maybe this is the start of the contagion. Any thoughts on this, @artemiso
“ This level of [failure to deliver] FTD accumulation is criminal and could very much cause systemic risk to the world financial system. If the blue chip long positions, (Tesla,Apple,Amazon), that are held by these funds are liquidated to pay off their margin calls or for NSCC buy backs, the market itself could see a catastrophic event unfold. Griffin casually evaded questions directly asked by Andreessen regarding the company's short position in Gamestop and AMC theaters. When this short squeeze happens, it could result in the greatest transfer of wealth in market history and the liquidation of a number of Hedge Funds that are valued in the trillions collectively.)”
Most of the holdings on reported on 13Fs reflect hedged positions. No, SIG and Citadel are most likely not holding a massive directional bet on AMC or GME that is going to need emergency liquidation. They have massive gross notional positions on AMC, GME or whatever popular retail ticker, because uninformed retail investors are crossing massive spreads on the options that they quote, which OMMs like SIG and Citadel thereafter instantly hedge against the underlying to lock in a sizable profit. In fact the high institutional holding %s are some indication of how profitable this is to them and au contraire, they would've been more happy if Robinhood didn't stop trading. (And word has it that SIG made a killing on the heavily scrutinized day that Robinhood halted trading.)
But I still think not.
