1. C

    Concept about price return of futures contract

    Hi all, I would like to understand the relationship between price return and the term structure of futures conteact. I understand that contango is associated with negative roll return while positive roll return with backwardation. How is the price return related to contango and backwardation ...
  2. Nicole Seaman

    YouTube T3-20: Contango versus normal backwardation

    In the case of a consumption commodity (e.g., corn, copper) we expected to observe contango: F(0) exceeds S(0). Contango implies (i) the cost of carry exceeds the convenience yield, and identically (ii) the risk-free rate exceeds the lease rate. We also might expect normal backwardation: F(0) is...
  3. Nicole Seaman

    YouTube T3-19: Contango features

    Three features of a commodity forward curve in CONTANGO (i.e., upward-sloping): 1. riskfree rate is greater than lease rate; 2. Negative roll yield for the long position; 3. Consistent with "normal backwardation" David's XLS is here:
  4. J

    Does the long position in contango always incur a loss?

    Hi David, the roll yield for a long futures position in contango is negative (I.e. futures prices are always decreasing until they converge to the spot at maturity so a long futures position that closed out in the interim or at maturity will always incur loss). Does this mean that if I were to...
  5. G

    Contango, backwardation and trading cheap

    Hi, A Futures Contract is said to be Trading Rich when : the Actual Price E(St) > the Model Predicted Price = F0=S0* EXP[ ( Rf + Storage Costs ) - ( Div + Yield ) ] T--> Normal Contango A Short Futures Contract would Deliver as Late as possible when (Div + Yield ) > ( Rf + Storage Costs) and...
  6. Nicole Seaman

    P1.T3.718. Cost of carry with cash flow and normal backwardation (Hull Chapter 5)

    Learning objectives: Calculate, using the cost-of-carry model, forward prices where the underlying asset either does or does not have interim cash flows. Describe the various delivery options available in the futures markets and how they can influence futures prices. Explain the relationship...
  7. I

    contango and backwardation of commodity

    Hi, question 27, in 08 practice exam part III 27. Which of the following best describes what we would normally expect to see in a seasonal agricultural market like wheat? Assume “the harvest” is normal and not unusually big or unusually small. Now consider the following statements about...