REEE initiium
rollretum
CALENDAR
SPEFES fffutures Backwardation
contango
Theoryofstorage Fp So NCC insurance
Reading 30: Key Concepts theory producessell
futures slfatpin.tn potages
SCHWESERNOTES - BOOK 4
HedgingPressureHypothesis 19yffg.in
gEdfhin
Pulltospotpricesforfuturesprices futures
buy
consumer
producersell
f utures
LOS 30.a DEMAND SUPPLY
Commodity sectors include energy (crude oil, natural gas, and refined petroleum products); industrial metals (aluminum, nickel, zinc,
lead, tin, iron, and copper); grains (wheat, corn, soybeans, and rice); livestock (hogs, sheep, cattle, and poultry); precious metals (gold,
silver, and platinum); and softs or cash crops (co!ee, sugar, cocoa, and cotton).
Crude oil must be refined into usable products but may be shipped and stored in its natural form. Natural gas may be used in its natural
form but must be liquefied to be shipped overseas.
Industrial and precious metals have demand that is sensitive to business cycles and typically can be stored for long periods. notcostly
Production of grains and softs is sensitive to weather. Livestock supply is sensitive to the price of feed grains.
LOS 30.b
The life cycle of commodity sectors includes the time it takes to produce, transport, store, and process the commodities.
Crude oil production involves drilling a well and extracting and transporting the oil. Oil is typically stored for only a short period
before being refined into products that will be transported to consumers.
Natural gas requires little processing and may be transported to consumers by pipeline.
Metals are produced by mining and smelting ore, which requires producers to construct large-scale fixed plants and purchase
equipment. Most metals can be stored long term.
monthlyfuturecontracts sticky
production
Livestock production cycles vary with the size of the animal. Meat can be frozen for shipment and storage.
Q
Grain production is seasonal, but grains can be stored after harvest. Growing seasons are opposite in the northern and southern
setae hemispheres.
Softs are produced in warm climates and have production cycles and storage needs that vary by product.
LOS 30.c
In contrast to equities and bonds, which are valued by estimating the present value of their future cash flows, commodities do not
produce periodic cash inflows. While the spot price of a commodity may be viewed as the estimated present value of its future selling
price, storage costs (i.e., cash outflows) may result in forward prices that are higher than spot prices.
costofstoring costofobligation
LOS 30.d
Participants in commodity futures markets include hedgers, speculators, arbitrageurs, exchanges, analysts, and regulators.
tradeswhat
theymustdointhefuture
Informed investors are those who have information about the commodity they trade. Hedgers are informed investors because they
produce or use the commodity. Some speculators act as informed investors and attempt to profit from having better information or a
better ability to process information. Other speculators profit from providing liquidity to the futures markets.
tattacetriaki
LOS 30.e
Arbitrageurs buy storesunderlyingwhenΔprice costofcarry
Basis is the di!erence between the spot price and a futures price for a commodity. Calendar spread is the di!erence between futures
Analysts non
prices for contracts marketparticipants
with di!erent expiration dates.
A market is in contango if futures prices are greater than spot prices, or in backwardation if futures prices are less than spot prices.
spot futuresprice
Calendar spreads and basis are negative in contango and positive in backwardation. nearer furtherfuturesprice
LOS 30.f
near furtherfuturesprice nearer furtherfuturesprice
Insurance Theory states that futures returns compensate contract buyers for providing protection against price risk to futures contract
sellers (i.e., the producers). This theory implies that backwardation is a normal condition.
futuresprice spotpriceoverafuturescontract
The Hedging Pressure Hypothesis expands on Insurance Theory by including long hedgers as well as short hedgers. This theory suggests
futures markets will be in backwardation when short hedgers dominate and in contango when long hedgers dominate.
The Theory of Storage states that spot and futures prices are related through storage costs and convenience yield.
https://www.kaplanlearn.com/education/dashboard/index/603a30d5be4d18486a42cd599e7973d1/course/108321459/node/5352671 04/06/2025, 22:40
Page 1 of 2
, LOS 30.g intofuture
prices further
futures weertainty 1
The total return on a fully collateralized long futures position consists of collateral return, price return, and roll return. Collateral return
is the yield on securities the investor deposits as collateral for the futures position. Price return or spot yield is produced by a change in
spot prices. Roll return results from closing out expiring contracts and reestablishing the position in longer-dated contracts.
LOS 30.h producessellfutures
Titanspriced retug.fiigerpEaicentie
Roll return is positive when a futures market is in backwardation because a long position holder will be buying longer-dated contracts
that are priced lower than the expiring contracts. Roll return is negative when a futures market is in contango because the longer-dated
BUTmanymarketsare incontango historicallyno returnsfromfuture
contracts are priced higher than the expiring contracts.
LOS 30.i
Investors can use swaps to increase or decrease exposure to commodities. In a total return swap, the variable payments are based on
the change in price of a commodity. In an excess return
moreproduceshedge SHORT sell future futureprice
swap, the variable payments are based on the di!erence between a commodity
BACKWARDATION
price and a benchmark value. In a basis swap, the variable payments are based on the di!erence in prices of two commodities. In a
commodity volatility swap, the variable payments are based on the volatility of a commodity price.
BUTproduceshave more core pricerisk
LOS 30.j
Returns on a commodity index are a!ected by how the index is constructed. The index components and weighting method a!ect which
future spot t stage congenial
commodities have the greatest influence on the index return. The methodology for rolling over expiring contracts may be passive or
active. Frequent rebalancing of portfolio weights may decrease index returns in trending markets or increase index returns in choppy or
mean-reverting markets.
Prev When you have finished this page, please Mark it Complete. MARK COMPLETE Next
new
rollreturn expiring
expiring
picentum
mail.EE i iiae current previous mentietffle
previous
inBethwaithonchting
netrollreturn rollreturnofsectionofportfolio
talkonriskofexposureaudgerisa
bye
LE.IE
fi
tjeiee PEictmthw
Eiiig1ltei
receives basedon
off.IE
Priest
statuette chit
https://www.kaplanlearn.com/education/dashboard/index/603a30d5be4d18486a42cd599e7973d1/course/108321459/node/5352671 04/06/2025, 22:40
Page 2 of 2
rollretum
CALENDAR
SPEFES fffutures Backwardation
contango
Theoryofstorage Fp So NCC insurance
Reading 30: Key Concepts theory producessell
futures slfatpin.tn potages
SCHWESERNOTES - BOOK 4
HedgingPressureHypothesis 19yffg.in
gEdfhin
Pulltospotpricesforfuturesprices futures
buy
consumer
producersell
f utures
LOS 30.a DEMAND SUPPLY
Commodity sectors include energy (crude oil, natural gas, and refined petroleum products); industrial metals (aluminum, nickel, zinc,
lead, tin, iron, and copper); grains (wheat, corn, soybeans, and rice); livestock (hogs, sheep, cattle, and poultry); precious metals (gold,
silver, and platinum); and softs or cash crops (co!ee, sugar, cocoa, and cotton).
Crude oil must be refined into usable products but may be shipped and stored in its natural form. Natural gas may be used in its natural
form but must be liquefied to be shipped overseas.
Industrial and precious metals have demand that is sensitive to business cycles and typically can be stored for long periods. notcostly
Production of grains and softs is sensitive to weather. Livestock supply is sensitive to the price of feed grains.
LOS 30.b
The life cycle of commodity sectors includes the time it takes to produce, transport, store, and process the commodities.
Crude oil production involves drilling a well and extracting and transporting the oil. Oil is typically stored for only a short period
before being refined into products that will be transported to consumers.
Natural gas requires little processing and may be transported to consumers by pipeline.
Metals are produced by mining and smelting ore, which requires producers to construct large-scale fixed plants and purchase
equipment. Most metals can be stored long term.
monthlyfuturecontracts sticky
production
Livestock production cycles vary with the size of the animal. Meat can be frozen for shipment and storage.
Q
Grain production is seasonal, but grains can be stored after harvest. Growing seasons are opposite in the northern and southern
setae hemispheres.
Softs are produced in warm climates and have production cycles and storage needs that vary by product.
LOS 30.c
In contrast to equities and bonds, which are valued by estimating the present value of their future cash flows, commodities do not
produce periodic cash inflows. While the spot price of a commodity may be viewed as the estimated present value of its future selling
price, storage costs (i.e., cash outflows) may result in forward prices that are higher than spot prices.
costofstoring costofobligation
LOS 30.d
Participants in commodity futures markets include hedgers, speculators, arbitrageurs, exchanges, analysts, and regulators.
tradeswhat
theymustdointhefuture
Informed investors are those who have information about the commodity they trade. Hedgers are informed investors because they
produce or use the commodity. Some speculators act as informed investors and attempt to profit from having better information or a
better ability to process information. Other speculators profit from providing liquidity to the futures markets.
tattacetriaki
LOS 30.e
Arbitrageurs buy storesunderlyingwhenΔprice costofcarry
Basis is the di!erence between the spot price and a futures price for a commodity. Calendar spread is the di!erence between futures
Analysts non
prices for contracts marketparticipants
with di!erent expiration dates.
A market is in contango if futures prices are greater than spot prices, or in backwardation if futures prices are less than spot prices.
spot futuresprice
Calendar spreads and basis are negative in contango and positive in backwardation. nearer furtherfuturesprice
LOS 30.f
near furtherfuturesprice nearer furtherfuturesprice
Insurance Theory states that futures returns compensate contract buyers for providing protection against price risk to futures contract
sellers (i.e., the producers). This theory implies that backwardation is a normal condition.
futuresprice spotpriceoverafuturescontract
The Hedging Pressure Hypothesis expands on Insurance Theory by including long hedgers as well as short hedgers. This theory suggests
futures markets will be in backwardation when short hedgers dominate and in contango when long hedgers dominate.
The Theory of Storage states that spot and futures prices are related through storage costs and convenience yield.
https://www.kaplanlearn.com/education/dashboard/index/603a30d5be4d18486a42cd599e7973d1/course/108321459/node/5352671 04/06/2025, 22:40
Page 1 of 2
, LOS 30.g intofuture
prices further
futures weertainty 1
The total return on a fully collateralized long futures position consists of collateral return, price return, and roll return. Collateral return
is the yield on securities the investor deposits as collateral for the futures position. Price return or spot yield is produced by a change in
spot prices. Roll return results from closing out expiring contracts and reestablishing the position in longer-dated contracts.
LOS 30.h producessellfutures
Titanspriced retug.fiigerpEaicentie
Roll return is positive when a futures market is in backwardation because a long position holder will be buying longer-dated contracts
that are priced lower than the expiring contracts. Roll return is negative when a futures market is in contango because the longer-dated
BUTmanymarketsare incontango historicallyno returnsfromfuture
contracts are priced higher than the expiring contracts.
LOS 30.i
Investors can use swaps to increase or decrease exposure to commodities. In a total return swap, the variable payments are based on
the change in price of a commodity. In an excess return
moreproduceshedge SHORT sell future futureprice
swap, the variable payments are based on the di!erence between a commodity
BACKWARDATION
price and a benchmark value. In a basis swap, the variable payments are based on the di!erence in prices of two commodities. In a
commodity volatility swap, the variable payments are based on the volatility of a commodity price.
BUTproduceshave more core pricerisk
LOS 30.j
Returns on a commodity index are a!ected by how the index is constructed. The index components and weighting method a!ect which
future spot t stage congenial
commodities have the greatest influence on the index return. The methodology for rolling over expiring contracts may be passive or
active. Frequent rebalancing of portfolio weights may decrease index returns in trending markets or increase index returns in choppy or
mean-reverting markets.
Prev When you have finished this page, please Mark it Complete. MARK COMPLETE Next
new
rollreturn expiring
expiring
picentum
mail.EE i iiae current previous mentietffle
previous
inBethwaithonchting
netrollreturn rollreturnofsectionofportfolio
talkonriskofexposureaudgerisa
bye
LE.IE
fi
tjeiee PEictmthw
Eiiig1ltei
receives basedon
off.IE
Priest
statuette chit
https://www.kaplanlearn.com/education/dashboard/index/603a30d5be4d18486a42cd599e7973d1/course/108321459/node/5352671 04/06/2025, 22:40
Page 2 of 2
