What is Contango ?
The badla charges i.e. rate of interest paid by a bull i.e., purchaser of shares on money borrowed with which he pays for the shares bought by him. The money is borrowed from one account day to the next account day i.e. for the period of one settlement. The contango charges depend on the ruling rate of market interests and the quantum of purchase position in the shares sought to be carried over from one settlement to the other.
Contango is when the price of oil tomorrow is more expensive than the price of oil today. Remember, oil isn’t like gold. You don’t buy physical oil the way you might buy physical bars of gold. Oil is too sticky, too hard to store, too toxic, etc. Instead, you buy oil futures. Like stock futures, oil futures give you the obligation to buy physical oil at a predetermined price at some date in the future. There are futures available for each month of the year: you can buy a future right now that gives you the right to buy oil in July 2008, August 2008, September 2008, and so on. Most commodity funds (including ETFs) buy what’s called the “near-month” contract – currently, that is the July contract. These futures “expire” on the third Friday of every month. If a fund holds a contract through expiration, it has to take delivery of 1,000 barrels of physical oil at a depot in Cushing, Oklahoma. Most investors don’t want to do that, so they sell the current contract before it expires and buy i
Contango is a phenomenon in the marketplace that involves a comparison between futures price and the spot price of a given security. Essentially, this means that there is an expectation that the prices associated with the front month will be lower than the prices associated with the back month. When this occurs, futures prices tend to reduce back to cited spot prices before the actual delivery date on the futures arrives. Projecting contango requires taking several factors into consideration. One of these has to do with the carrying costs that are associated with just about any type of securities issue. Carrying costs can include such element as storage and interest. Because carrying costs are always applied to the back months, there is a built in expectation that the prices associated with a given back month will be higher than the current or front month. When this expectation proves to be true, contango exists. While contango is a very common market phenomenon, there is an opposite m
