Yes: in backwardation the forward price is lower than the spot price; in contango the forward price is higher than the spot price. Contango should be more common; backwardation will exist primarily when the benefits of holding an asset (lease rate plus convenience yield) exceed the cost of holding the asset (risk-free rate plus storage).
I’m not quite sure what you mean here.
No. Contango, for example, means that today’s forward price is higher than today’s spot price, but the original forward price could be higher or lower than today’s spot price, and higher or lower than today’s forward price. The difference you show is neither always positive nor always negative (it could be either when markets are in contango, and either when markets are in backwardation).
Yes, though for some reason they always do these calculations from the viewpoint of the long position.
Nope. See below.
No. That’s total return (ignoring collateral return for the moment.)
Spot return = new spot price – old spot price
Roll return = (new forward price – old forward price) – spot return
= (new forward price – old forward price) – (new spot price – old spot price)
Total return = spot return + collateral return + roll return
A better way to think of roll return uses a bit of algebra:
Roll return = (new forward price – old forward price) – (new spot price – old spot price)
= (new forward price – new spot price) – (old forward price – old spot price)
= (new cost/benefit of forward) – (old cost/benefit of forward)
So, if you don’t roll, then you drop the (new forward price - new spot price) and get:
total return =spot return + collateral return + roll return
= (new spot price – old spot price) + collateral return – (old forward price – old spot price)
= new spot price – old forward price + collateral return . . . as you would expect.
(Note that when you don’t roll, the roll return isn’t zero, it’s: –(old forward price – old spot price).)
