Hi Can someone explains why barkwardation results in a positive roll return and changes in future prices > changes in spot prices? Confused. Thanks in advance.
Future price is less than the spot price in Backwardation. Forward downward sloping curve
JUst read this: the positive roll yield (or backwardation) is bec the price of the expiring futures contracts is higher than the price of replacement contract, hence selling the expiring contract and buy the lower replacement contract (as one rollover the futures contract) will yield a positive roll return.
in backwardation, forward price < spot, so it must increase to merge with spot price at maturity resulting in a positive roll yield (as Fp increases upto Sp) opposite happens in case of contango (when Fp > Sp and roll yield is negative)
Search last year for null&nuller. He had a good explanation for those that learn visually.
Yes backwardation happens when there is a lease rate or convienance yield. Could have a cost of carry too like storage cost.
mwvt9 Wrote: ------------------------------------------------------- > Search last year for null&nuller. He had a good > explanation for those that learn visually. Can you post the link please? I could not find it
derswap07 Wrote: ------------------------------------------------------- > mwvt9 Wrote: > -------------------------------------------------- > ----- > > Search last year for null&nuller. He had a > good > > explanation for those that learn visually. > > Can you post the link please? I could not find it Yes I cant find it too.