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Contango
Contango is a situation where the futures price (or forward price) of a commodity is higher than the ''expected'' spot price of the contract at maturity. In a contango situation, arbitrageurs or speculators are "willing to pay more owfor a commodity o be receivedat some point in the future than the actual expected price of the commodity t that future point This may be due to people's desire to pay a premium to have the commodity in the future rather than paying the costs of storage and carry costs of buying the commodity today." On the other side of the trade, hedgers (commodity producers and commodity holders) are happy to sell futures contracts and accept the higher-than-expected returns. A contango market is also known as a normal market, or carrying-cost market. The opposite market condition to contango is known as backwardation. "A market is 'in backwardation' when the futures price is below the ''expected'' spot price for a particular commodity. This is favorable for inv ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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Backwardation
Normal backwardation, also sometimes called backwardation, is the market condition where the price of a commodity's forward or futures contract is trading below the ''expected'' spot price at contract maturity. The resulting futures or forward curve would ''typically'' be downward sloping (i.e. "inverted"), since contracts for further dates would typically trade at even lower prices. In practice, the expected future spot price is unknown, and the term "backwardation" may refer to "positive basis", which occurs when the current spot price exceeds the price of the future. The opposite market condition to normal backwardation is known as contango. Contango refers to "negative basis" where the future price is trading above the expected spot price. Note: In industry parlance backwardation may refer to the situation that futures prices are below the ''current'' spot price. Backwardation occurs when the difference between the forward price and the spot price is less than the cost ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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Lars Valentin Jacobsson
Lars Jacobsson (born May 11, 1965) is a Swedish entrepreneur, inventor, philanthropist, and conservationist. Career Jacobsson initially worked in the petroleum industry, where he was involved in starting up storage, trading and shipping companies, as well as being the inventor of the oil Contango market in the early 1990s. In early 2000s he sold his oil related businesses. Since 2005, he started up two solar energy companies. In 2010, Jacobsson founded United Sun Systems International, a London-based company which develops solar energy technology. Philanthropy Together with his wife Ragnhild Jacobsson, he founded The Perfect World Foundation, a non-profit and independent Swedish based organisation that promotes conservation. In 2014 the organisation held the fundraising gala and wildlife and environmental conference in favour of the endangered rhinos and elephants, with participants from all over the world. Jacobbson and his wife are ambassadors at the London-based organisation ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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Forward Contract
In finance, a forward contract or simply a forward is a non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed on at the time of conclusion of the contract, making it a type of derivative instrument.John C Hull'', Options, Futures and Other Derivatives (6th edition)'', Prentice Hall: New Jersey, USA, 2006, 3 The party agreeing to buy the underlying asset in the future assumes a long position, and the party agreeing to sell the asset in the future assumes a short position. The price agreed upon is called the ''delivery price'', which is equal to the forward price at the time the contract is entered into. The price of the underlying instrument, in whatever form, is paid before control of the instrument changes. This is one of the many forms of buy/sell orders where the time and date of trade is not the same as the value date where the securities themselves are exchanged. Forwards, like other derivative securities, c ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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Cost Of Carry
The cost of carry or carrying charge is the cost of holding a security or a physical commodity over a period of time. The carrying charge includes insurance, storage and interest on the invested funds as well as other incidental costs. In interest rate futures markets, it refers to the differential between the yield on a cash instrument and the cost of the funds necessary to buy the instrument. If long, the cost of carry is the cost of interest paid on a margin account. Conversely, if short, the cost of carry is the cost of paying dividends, or rather the opportunity cost; the cost of purchasing a particular security rather than an alternative. For most investments, the cost of carry generally refers to the risk-free interest rate that could be earned by investing currency in a theoretically safe investment vehicle such as a money market account minus any future cash flows that are expected from holding an equivalent instrument with the same risk (generally expressed in percentag ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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Futures Contract
In finance, a futures contract (sometimes called a futures) is a standardized legal contract to buy or sell something at a predetermined price for delivery at a specified time in the future, between parties not yet known to each other. The asset transacted is usually a commodity or financial instrument. The predetermined price of the contract is known as the ''forward price''. The specified time in the future when delivery and payment occur is known as the ''delivery date''. Because it derives its value from the value of the underlying asset, a futures contract is a derivative. Contracts are traded at futures exchanges, which act as a marketplace between buyers and sellers. The buyer of a contract is said to be the long position holder and the selling party is said to be the short position holder. As both parties risk their counter-party reneging if the price goes against them, the contract may involve both parties lodging as security a margin of the value of the contract wi ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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Oil-storage Trade
The oil-storage trade, also referred to as contango, is a market strategy in which large, often vertically-integrated oil companies purchase oil for immediate delivery and storage—when the price of oil is low— and hold it in storage until the price of oil increases. Investors bet on the future of oil prices through a financial instrument, oil futures in which they agree on a contract basis, to buy or sell oil at a set date in the future. Crude oil is stored in salt mines, tanks and oil tankers. Investors can choose to take profits or losses prior to when the oil delivery date arrives or they can leave the contract in place and physical oil is delivered on the set date to an officially designated delivery point. In the United States, that is usually to Cushing, Oklahoma. When delivery dates approach, they close out existing contracts and sell new ones for future delivery of the same oil. The oil never moves out of storage. If the forward market is in "contango"—the forward pr ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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Rational Pricing
Rational pricing is the assumption in financial economics that asset prices - and hence asset pricing models - will reflect the arbitrage-free price of the asset as any deviation from this price will be "arbitraged away". This assumption is useful in pricing fixed income securities, particularly bonds, and is fundamental to the pricing of derivative instruments. Arbitrage mechanics Arbitrage is the practice of taking advantage of a state of imbalance between two (or possibly more) markets. Where this mismatch can be exploited (i.e. after transaction costs, storage costs, transport costs, dividends etc.) the arbitrageur can "lock in" a risk-free profit by purchasing and selling simultaneously in both markets. In general, arbitrage ensures that "the law of one price" will hold; arbitrage also equalises the prices of assets with identical cash flows, and sets the price of assets with known future cash flows. The law of one price The same asset must trade at the same price on all ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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Oil-storage Trade
The oil-storage trade, also referred to as contango, is a market strategy in which large, often vertically-integrated oil companies purchase oil for immediate delivery and storage—when the price of oil is low— and hold it in storage until the price of oil increases. Investors bet on the future of oil prices through a financial instrument, oil futures in which they agree on a contract basis, to buy or sell oil at a set date in the future. Crude oil is stored in salt mines, tanks and oil tankers. Investors can choose to take profits or losses prior to when the oil delivery date arrives or they can leave the contract in place and physical oil is delivered on the set date to an officially designated delivery point. In the United States, that is usually to Cushing, Oklahoma. When delivery dates approach, they close out existing contracts and sell new ones for future delivery of the same oil. The oil never moves out of storage. If the forward market is in "contango"—the forward pr ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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Convenience Yield
A convenience yield is an implied return on holding inventories. It is an adjustment to the cost of carry in the non-arbitrage pricing formula for forward prices in markets with trading constraints. Let F_ be the forward price of an asset with initial price S_t and maturity T. Suppose that r is the continuously compounded interest rate for one year. Then, the non-arbitrage pricing formula should be F_ = S_t \cdot e^ However, this relationship does not hold in most commodity markets, partly because of the inability of investors and speculators to short the underlying asset, S_t. Instead, there is a correction to the forward pricing formula given by the convenience yield c. Hence F_ = S_t \cdot e^ This makes it possible for backwardation to be observable. Example A trader has observed that the price of six-month (T) gold futures price (F) is $1,300 per troy ounce, whereas the spot price (S) is $1,371 per troy ounce. The (not compounded) borrowing rate for a six-month l ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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United States Oil Fund
The United States Oil Fund () is an exchange-traded fund (ETF) that attempts to track the price of West Texas Intermediate, West Texas Intermediate Light Sweet Crude Oil. It is distinguished from an exchange-traded note (ETN) since it represents an ownership claim on underlying securities that the fund has packaged. USO invests in oil future contracts that are traded on regulated futures exchanges. Background The United States Oil Fund was founded on April 10, 2006, by Victoria Bay Asset Management, now known as United States Commodity Funds, and the American Stock Exchange. The fund opened on its first day of trading at $68.25 per share. USO's investment objective is to include the changes in percentage terms of its units' net asset value in its evaluation of the changes in percentage terms of the spot price of light, sweet crude oil as measured by its price on the New York Mercantile Exchange. Its performance is determined by the price of oil through its oil futures contracts.{ ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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Interest Rates
An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, the compounding frequency, and the length of time over which it is lent, deposited, or borrowed. The annual interest rate is the rate over a period of one year. Other interest rates apply over different periods, such as a month or a day, but they are usually annualized. The interest rate has been characterized as "an index of the preference . . . for a dollar of present ncomeover a dollar of future income." The borrower wants, or needs, to have money sooner rather than later, and is willing to pay a fee—the interest rate—for that privilege. Influencing factors Interest rates vary according to: * the government's directives to the central bank to accomplish the government's goals * the currency of the principal sum lent or borrowed * ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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Federal Reserve
The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series of financial panics (particularly the panic of 1907) led to the desire for central control of the monetary system in order to alleviate financial crises. Over the years, events such as the Great Depression in the 1930s and the Great Recession during the 2000s have led to the expansion of the roles and responsibilities of the Federal Reserve System. U.S. Congress, Congress established three key objectives for monetary policy in the Federal Reserve Act: maximizing employment, stabilizing prices, and moderating long-term interest rates. The first two objectives are sometimes referred to as the Federal Reserve's dual mandate. Its duties have expanded over the years, and currently also include supervising and bank regulation, regulating ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |