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Contango is a situation in which the futures price (or forward price) of a commodity is higher than the expected spot price of the contract at maturity. [1] In a contango situation, arbitrageurs or speculators are "willing to pay more [now] for a commodity [to be received] at some point in the future than the actual expected price of the ...
Futures prices tend to be in contango; The volatility of spot and futures prices tend to be low, and futures premiums rise to the full cost of storage; When supplies are tight, and purchasing managers build production inventory levels to ensure availability, Futures prices tend toward backwardation
The concept started to be used by oil traders in the market in early 1990. [2] But it was in 2007 through 2009 that the oil storage trade expanded. [6] Many participants—including Wall Street giants, such as Morgan Stanley, Goldman Sachs, and Citicorp—turned sizeable profits simply by sitting on tanks of oil. [5]
The opposite market condition to normal backwardation is known as contango. Contango refers to "negative basis" where the future price is trading above the expected spot price. [3] Note: In industry parlance backwardation may refer to the situation that futures prices are below the current spot price. [4]
A convenience yield is an implied return on holding inventories. [1] [2] It is an adjustment to the cost of carry in the non-arbitrage pricing formula for forward prices in markets with trading constraints.
Exchange-traded funds are some of the most useful investments ever created. But they can also be more complicated than you realize, and if you don't understand all the intricacies involved in a ...
A commodity price index is a fixed-weight index or (weighted) average of selected commodity prices, which may be based on spot or futures prices.It is designed to be representative of the broad commodity asset class or a specific subset of commodities, such as energy or metals.
This pattern of falling prices is known as a contango. Figure 3.10 depicts these price patterns." Financial Lexicon, Banks, Palgrave MacMillan, 2005, p. 76 "CONTANGO A market state where FUTURES prices are higher than expected SPOT prices and decline as contract maturity approaches." Difficult to pick a user name 10:48, 22 May 2008 (UTC)