How does contango actually affect the price of an ETF?
Contango is a situation in which the near-month futures are actually less expensive than those that expire later on. As a result, when the roll process is underway, it can easily result in selling low and buying high.
How does contango effect ETF?
Contango translates into roll costs to an investor (or an ETF) having to move from one contract to the next. The opposite of contango is backwardation, when the expiring futures contract is trading at a premium to the next contract. Contango and backwardation impact commodity futures and futures-based ETF returns.
How does contango benefit?
One way to benefit from contango is through arbitrage strategies. For example, an arbitrageur might buy a commodity at the spot price and then immediately sell it at a higher futures price. As futures contracts near expiration, this type of arbitrage increases.
Is contango bullish or bearish?
bullish
Contango refers to a situation where the futures price of an underlying commodity is higher than its current spot price. Contango is considered a bullish sign because the market expects that the price of the underlying commodity will rise in the future and as such, participants are willing to pay a premium for it now.
How do you deal with contango?
Consider your trading strategy. One way to trade contango is to go short or sell at spot price and then go long or buy a further out contract. This can lock in a higher sell price and a lower buy price.
Why is Bitcoin in contango?
Bitcoin futures listed on the Chicago Mercantile Exchange are in contango, meaning the contract expiring at the end of January trades at a lower price than futures with later maturities. The ETF also has a 0.95% annual fee.
Are oil prices in contango?
Contango is normal for a non-perishable commodity, like crude oil and products, which have a cost of carry. Such costs include storage fees and interest forgone on money that is tied up in inventory.
What does it mean when market is in contango?
Contango and backwardation are terms used to define the structure of the forward curve. When a market is in contango, the forward price of a futures contract is higher than the spot price. Conversely, when a market is in backwardation, the forward price of the futures contract is lower than the spot price.
Why is it called contango?
The term originated in 19th century England and is believed to be a corruption of “continuation”, “continue” or “contingent”. In the past on the London Stock Exchange, contango was a fee paid by a buyer to a seller when the buyer wished to defer settlement of the trade they had agreed.
What is a contango bleed?
Contango bleed is a term for the costs that futures ETFs must take on to renew, or roll, their futures contracts. If the price of the futures contracts is higher than the expiring contract, the ETFs lose a bit of money each instance, and this adds up over time.
Is Bitcoin a contango or backwardation?
Can Bitcoin Futures be in Contango? Bitcoin futures are traded in contango most of the time. In a contango scenario, the futures contracts prices will fall to the expected spot price when the contract is nearing the expiry date.
Is VIX a contango?
More often than not, the VIX futures curve consists of the nearest maturity contract having the lowest price and the price of each farther dated contract having a higher price than the previous contract. In other words, the VIX futures curve is typically in contango, that is, upward sloping.
Is oil in contango or backwardation?
backwardation
The brent curve has broadly remained in backwardation since the beginning of 2021 as OPEC+ began to curtail production to balance the market once the COVID pandemic began. The United States strategic petroleum reserve currently reads 577.5 million barrels which is almost at a ten-year low.
Why are VIX futures in contango?
This is very common in VIX futures – in the long run, contango occurs vast majority of time, which is due to the skewed and mean reverting nature of the VIX and volatility in general (long time at low levels, with occasional big but mostly short-lived spikes).
Is natural gas in contango?
Both the HO and Nat Gas contracts move into contango and backwardation on a seasonal basis. Both commodities are over produced during the summer season while demand outstrips demand during the winter heating season. The degree of contango and backwardation are very fundamentally driven.