Roll Return? Why does it involve spot price?

Was surprised to find out roll return involved spot price.

The formula is F1-F0- (S1-S0). Anyone care to explain?

Well, the basic idea is that roll return is only due to the shape of the forward curve. Gains or losses due to price shocks to the actual underlier are not considered a “roll”.

Well roll return is the return of a futures position not explained by the spot change (to say differently, the shape of the curve impacting return).

Therefore you have the total change in future price (F1-FO) less the change in spot (S1-SO) as the roll with the spot prices being included in the calculation to isolate the amount of change that is just the future curve.

I think of it this way:

Remember Contango =Future(F1-F0)>Expected Spot(S1-S0) produces negative roll yield.

In Contango, F1 will be less than F0 as futures prices decreases over time producing a negative number. If expected spot (S1-S0)portion of the curve is always less than F1-F0, this formula will always produce a negative result which it should as Contango produces negative roll yield.