Hilary Till, Principal
Premia Capital Management, LLC
Continuing the discussion of the Hilary Till study, the next interesting tool she mentions is the roll yield embedded in the term structure of futures contracts. In her own words:
In the past, even if spot commodity prices declined, there was an additional way that a commodity investor could have a positive statistical expectation of profit, and that was through the “roll yield” embedded in certain commodity futures contracts.
By term structure, we mean one should examine the relative price differences of futures contracts across delivery months. When a near-month contract is trading at a premium to more distant contracts, we say that a commodity futures curve is in “backwardation.” Conversely, when a near-month contract is trading at a discount to more distant contracts, we say that the curve is in “contango.”