Can anyone explain why the statement below is true?
“A long position in backwardation will produce a greater roll return than a position in contango if the price increases.”
Thank you
In backwardation the futures curve is downward sloping, possibly due to a convenience yield. You can gain just through buy+hold.
Backwardation generate positive roll yield. Contango is negative roll yeild.
Backwardation market long dated futures < short dated futures and hence the cost of long dated future/s is less. Rolling contracts will thus produce a positive roll yield as the cost is less