the question says to calculate roll return . to me that should be (july future price) - (june future price).
why are we also subtracting the change in spot price ? i would agree if the question said to calculate entire future return - but not for calculating just the roll return.
any comments, opinions?
The roll return is just a term denoting the difference between the futures price change and the cash or spot price change .
It is not a return for holding the futures contract , but rather a spread between the futures contract and the asset price movement.
Say again?
Although they teach it that way (and algebraically that’s correct), it’s not the best way to think of it. Try this:
roll return = Δfuture price – Δspot price
= (new future price – old future price) – (new spot price – old spot price)
= (new future price – new spot price) – (old future price – old spot price)
= new profit from future – old profit from future.
That’s a better way to remember roll yield: you had a profit (future – spot) in the old contract; has it gone up with the new contract (positive roll yield) or gone down (negative roll yield)?