Contago-Backwardation ?
does anyone know why and when the theoretical limit for contango can be violated
thanks
does anyone know why and when the theoretical limit for contango can be violated
thanks
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Violation of the anterior limit can generally take place after about 6 drinks. The posterior limit is quite a bit more constrained and generally cannot be violated without atleast 8-10 drinks + a sedative agent.
come on man
If you're talking about cost of carry / arb then it can be violated during times of stress like the recession (severe oversupply leading to a sharp fall in time spreads) or shortage due to crisis (think Libya) when the time spreads rally.
Also, regulatory influence, like not being able to export crude out of the US.
It depends. Depends on what the commodity is or the futures market.
All contango or backwardation points to, is when a market is getting overdone. You need to figure out for yourself if a short-term event will play out to the future. Crude has had years where it was backward'd for ages as mentioned above.
But no doubt most of the times a heavily backward-dated curve is pointing to time to get bullish. Likewise contango is pointing to time to get bearish.
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