contango roll yield

[pacmandefense]

by definition, contango mkts result in negative roll yields.
Schweser
Investor took a speculative long position in sugar futures in a contango mkt. through careful active management, he is able to achieve a positive roll yield when he closes out the position.
does that even make sense? do Schweser mean a positive RETURN, rather than ROLL yield?

 

[JoeyDVivre]

It’s just the kind of thing futures traders say. It sort-of makes sense, but I would disregard, “Through careful active management” he was able to achieve a positive roll yield in a contango market. My butt.

 

[ratul]

can someone remind me of the difference between contango and backwardation?

 

[daj224]

contango = future price > spot

 

[adalfu]

negative roll yield since when you roll forward your futures contract, you will earn a negative yield. hopefully that makes sense…
picture a positive sloping curve where futures price > spot price… when you “roll” the contract forward it’ll result in a negative yield.
I think that’s how it works or at least how i make sense of it (this is from my memory of CAIA studies)

 

[barthezz]

pacman,
do you recall the page or los in schweser from your introductory question?
thx

 

[swaptiongamma]

If a contango exists in a comodity market (Forward Price is greater than Spot Price) and the hedger wants to maintain his long position in the comodity, then round-about at the contact maturity date, he will have to close-out his prevaling contract and buy a new contract (at a new higher price). Thus ‘rolling’ his positing and causing a negative Roll yield. (+RY when mkts are in backwardation). But a trader can time his transactions to close-out & get-into a new one by ‘Active Management’ of his positions.
So ya a +RY is still possible in a contango market which involves a lot of Active Management.