Derivatives
Backwardation
Definition
What is Backwardation?
A futures-curve condition in which longer-dated prices are below the spot priceThe current market price for immediate or near-immediate delivery of an asset. or nearer contracts.
Example in practice
How This Looks in Practice
Rolling into cheaper contracts can create positive roll yieldThe return created when an expiring futures contract is replaced with a later contract at a different price..
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Related Terms
Derivatives
Derivative
A contract whose value depends on an underlying asset, rate, index, or event.
DerivativesUnderlying Asset
The asset, rate, index, or reference on which a derivative's value is based.
DerivativesNotional Amount
The reference amount used to calculate derivative payments, which may exceed the cash initially exchanged.
Derivatives StrategiesCovered Call
A strategy that owns the underlying asset and sells call options against it.