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CFA Level I · CFA Level I Exam · Natural Resources

An investor holds a long position in a commodity futures contract whose market is in backwardation. If the spot price stays unchanged, the roll yield from rolling the position to a later-dated contract is most likely:

Roll yield is most likely positive. In backwardation, deferred futures trade below nearer-dated ones, so a long investor sells the expiring contract at a higher price and buys the next at a lower price, gaining even if spot prices do not change.

  1. Azero, because the spot price is unchanged
  2. Bnegative, because the later contract trades at a higher price
  3. Cpositive, because the later contract trades at a lower priceCorrect

Explanation

In backwardation, futures prices are below spot and decline with maturity. Selling the expiring contract at a higher price and buying the next at a lower price produces positive roll yield. A negative roll yield arises in contango.

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