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I am trying to get the direction/terminology correct in futures calendar trading. Let's say I have two calendar futures contract where the prices are 100 and 102 reflecting the front and back contracts. Let's assume there's no optionality so futures = forwards.

The roll would be 100 - 102 = -2

Let's say I run a scenario where in the back contract, one of the bonds increases to 110 and the other one increases to 105.

In this case, my roll would be 100 - 105 = -5. If I expect this to happen, would I sell the roll or buy the roll and is this switch worth -3?

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    $\begingroup$ you would sell the roll because the later price, -5, is below the previous price, -2. $\endgroup$ – Attack68♦ Apr 18 '19 at 20:49
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    $\begingroup$ you expect the thing to go down (-2 -> -5), so to take advantage of this, you sell it. if you are right, you will make money. $\endgroup$ – Alex C Apr 18 '19 at 21:18
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You ideally sell the roll spread if futures are in contango (front month < back month) and you buy the roll spread if the futures are in backwardation (back month < front month).

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  • $\begingroup$ this is not true. it ignores any semblance of associated value. perhaps the front is cheaper because of differential carry expectations due to changing interest rate environments. Or perhaps the contract specifications are different, e.g. new CTD bond available on a bond future. Its like saying a grape costs \$1 and fruit bowl costs \$2, so buy the grape because its cheaper. $\endgroup$ – Attack68♦ May 19 '19 at 6:38
  • $\begingroup$ what? it ignores it because I didn't allude to reasons for contango or backwardation. you give the same answer above. I only included reference to contango or backwardation, which to be clear, can exist for a number of reasons, because he asked about terminology. $\endgroup$ – Chris May 19 '19 at 18:12

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