A futures premium decays as expiration nears (eg contango). Say I short West Texas Intermediate (WTI) crude oil futures. If the spot price has even odds of going up or down, do I (on average) profit through premium decay? Or is that not counted if you're shorting?

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    $\begingroup$ Do you mean options on futures? There is no premium in futures. $\endgroup$ – Drew Dec 1 '19 at 2:55
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    $\begingroup$ Yes there is, contango... $\endgroup$ – user43510 Dec 1 '19 at 5:12

As Drew mentioned in the comments above, "there is no premium in futures." The higher forward price is representative of things like cost of capital, insurance, storage, etc.

The most pure example I can think of would be on S&P futures (due to high liquidity and lack of insurance/storage considerations):

Spot - $3140
1 mo future - $3144.25

You sell the futures contract and wait 1 month with no movement in the S&P. 
You will have made $4.25 (times the contract multiplier, removed here for simplicity.) 

However, the way to look at this is that the buyer of the contract essentially 'borrowed' money from you at the risk free rate of ~1.62%.

Now extrapolate that concept to oil where there are extra costs associated with the physical good that you would essentially be lending the purchaser of the contract funds for. (Since they are not paying for it now, but some time in the future thanks to your contract.)

So, in short, on average you come out exactly even.

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    $\begingroup$ “So, in short, on average you come out exactly even.” - this is a very confident statement for an answer that doesn’t even begin to look at any data! $\endgroup$ – Chris Taylor Dec 1 '19 at 8:12
  • $\begingroup$ The point I'm trying to make is that the theorem of no-arbitrage true in futures. There is no average gain or average loss. This isn't an answer of specific data, but of principal. $\endgroup$ – Daniel Sims Dec 1 '19 at 17:10
  • $\begingroup$ You’re confused - the no arbitrage principle applied to futures says that you cannot make a risk-free profit by selling futures and buying spot, or vice-versa. That has nothing to do with whether you expect to make a profit by buying or selling futures based on the sign of the basis (i.e. without the spot leg) which is a question that needs data to answer it. $\endgroup$ – Chris Taylor Dec 1 '19 at 17:56
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    $\begingroup$ For example, I don’t think anyone would dispute that you expect to make money on average by going long S&P 500 futures, or short VIX futures. $\endgroup$ – Chris Taylor Dec 1 '19 at 17:57
  • $\begingroup$ Perhaps we interpret the question differently then. I see that you are probably correct in your interpretation of @user43510's ask, whereby he/she is looking for average absolute return without consideration of the spot leg. I agree that data would need to be present in order to actually answer that version. I also would not feel comfortable providing research/data on the topic. Not to mention that if I found an arbitrage opportunity for average gain in said research, I would not share it here. :) $\endgroup$ – Daniel Sims Dec 1 '19 at 18:39

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