Contango

[rcarlton88]

Can someone explain to me in plain English what a contango is (as well as backwardation)?

I have been surfing around the internet/wikipedia/whatever else and the explanations all leave me needing a bit more.

Does anyone know it well enough to describe it to me so I understand?

Thanks in advance!

 

[ogarbitrage]

Contango = near term prices are lower than long(er) term prices.

Upward progression: Jan @ 100, Feb @ 105, Mar @ 110.

Backwardation = near term prices are higher than long(er) term prices.

Downward progression: Jan @ 110, Feb @ 105, Mar @ 100.

 

[ogarbitrage]