can someone explain in simple words
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Roll yield is positive for backwardation and negative for contango for a Long Forward position. hence, the component of futures returns that will help recognize a contango or backwardation is roll yield.
Explanation:
Roll yield is the difference between the Spot price and the Futures price OR it is the difference between two forward prices. Also, Fwd price:
F = S(1+r) + storage cost – Convenience Yield.
At a time when there is 0 or very less CY, the F will be more (this is contango) than S and hence, S – F will be negative for such forwards. Roll yield is S – F