Lesson Overview

Backwardation/Contango

Contango is when the futures price is above the expected future spot price. Because the futures price must converge on the expected future spot price, contango implies that futures prices are falling over time as new information brings them into line with the expected future spot price.

Backwardation is when the futures price is below the expected future spot price. This is desirable for speculators who are "net long" in their positions: they want the futures price to increase. So, backwardation is when the futures prices are increasing.

More Discussion

Was This Helpful? Add Comments/Questions

  • Kevin Kettring

    Hi Kirk, I am starting to put it all together! I am excited. I have heard about the put call skew in certain products, they are different. The option product tab(tos) shows these graphs, but I don’t know how to interpret them and they have no recent seminars to watch on the topic. For example, I cant remember if it’s rut or spx, if you go out and put an iron condor on the same delta’s you will be closer to the upside in strikes
    so you have to adjust to a 10 delta to get equal distance. Does the question make sense?

    • Yes because puts are always more expensive (generally) because people will pay more to buy downside protection.

  • Kevin Kettring

    Kirk, I could use more training about vertical and time skew. Thanks

  • RKK

    Like the last video, interested in long term characteristics as a security moves from Backwardation to/from Contango.

eBook Download

The "Ultimate" Options Guide

Ultimate Options Strategy Guide

The step-by-step guide on how to set up each of the top 18+ options strategies we trade to generate monthly income. Read the whole strategy guide in less than 30 mins and have it forever to reference.

Download PDF

Join More Than 47,345 Members

Membership is always free & you can upgrade anytime to unlock our live trades.