Price Discovery: NYMEX Copper futures spread to Freeport McMoRan

NYMEX HG Forward Curve [edit with new]

This was an interesting one.  Below is the spread built
from trading a block of USD-denominated FCX shares (additional spreads can be built from the EUR-denominated) against the large (HG) NYMEX Copper futures.  A mini contract is available (QC) equal to half the size of the HG contract but suffers from a significant lack of liquidity relative to the HG contract.

The December contract was used in this study because it is the most liquid and maintains the tightest bid/ask spread as evidenced by the above forward curve.  Because the bid/ask spread is a function [pdf] of a market-maker's perceived risk, it is interesting to note the relative liquidity of different contracts on the curve.

Notice on the right of the chart when markets begin to perform the zeroing-in function once again.  Unfortunately, due to the large number of quote changes, Excel ran out of rows.  This appears to be a consistent problem.