contangno and backwardation

Good Student
Posts: 22
Joined: Sat Apr 26, 2014 7:29 am

contangno and backwardation

Postby sessiljoseph » Fri May 02, 2014 12:49 pm

Which of the following is TRUE about a normal/inverted futures market?
a) A futures market is either normal or inverted but cannot be a mixture
b) The roll return (roll yield) is profitable to a long futures position during an inverted
(backwardation) futures market
c) A falling futures price necessarily implies backwardation
d) Gold must always be a normal market (assuming positive interest rates) because it
has storage cost but does not pay a dividend

can u please explain when is roll return profitable for a long and short future positions

Finance Junkie
Posts: 709
Joined: Wed Apr 09, 2014 6:28 am

contangno and backwardation

Postby edupristine » Mon May 05, 2014 6:06 am

Rolling over is profitable when the market is in backwardation it means the future rates is less than the spot price.
Hence, If you are re-establishing the position, you have to pay less for the same position(contract).

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