For the below statement - “A major consequence of a downward-sloping term structure of futures prices is the opportunity to capture a positive roll return as investment in expiring contracts is moved to cheaper new outstanding contracts.”
Please provide any real data from commodities market to illustrate better on how positive roll return is captured in real world. TY.作者: kickthatcfa 时间: 2013-5-7 23:07
Hi cpk123,
I mean to understand this scenario - there will be costs involved in rolling the contracts. Taking the data given in pg48, if i am long futures in april 200X (T=April 200x) for contract expiring in June 200X (long price - 39.10).
Now how does my positions acquire roll yield? do i need to sell the contract and buy again? operationally how does it work?
Or, is it just that i buy and hold. In that case, the market price of my long position has increased to 40.58 (without any buy/sell). Thats like capital appreciation. Why is it called roll yield (new term?)
I am missing some point here. Please clarify.
TY.作者: Matori 时间: 2013-5-7 23:11
This is spelt out for you on pg 49. Roll yield happens when the market is backwardated. At this time - the futures price is lower than the Spot price - but there will be a convergence. So just by holding on to your futures contract - you can sell it at the spot - and enter into a new forward contract at a price lower than the current spot price.
and make money in the process.
