Commodity Roll Yield

CFA Level III Portfolio Management
#1

Hi, Can someone explain is this the correct formula for the Roll Yield?

roll= change in F less change in S => is this right? (Ft-1 - Ft) - (St - St-1)

example futures / Spot July 14.42 15.00 Aug 14.50 14.20

Spot declined by $0.08 we are short spot which produces a gain but futures should be 14.42 - 14.50 = -0.08

so total gain is Zero

Anyone

thanks

R

#2

Change in Futures = -0.08

Change in Spot = -0.80

So Roll Yield = -0.08 - (-0.80) = +0.72

#3

CPK

I never worked with commodities and futures please clarify following for me:

  1. the actually delta here means new contract - old contract ? not vice versa right
  2. Is this future in Contango? if every consecutive future contract is higher like below July - Aug and backwardation Sep-Oct:

July 14.42 Aug 14.50

Sep 14.49 Oct 14.39 Spot 14.29

And the last question: if futures expires in Oct roll yield for November is negative -0.10 ( calc futures converges down to lower spot price which I bought for 14.39 and counter party delivered spot for 14.29). In other words it is a “poor” trade.

R

#4

Do we need to know the formula for roll yield this year? I can’t seem to find it in the curriculum and I believe they re-wrote the alternative investment reading this year.

#5

I don’t believe we need to be calculating that.

#6

Nope.

Roll yield = (F_t_ − F_t−1) − (St_ − S_t_−1)

#7

It was literally the first question in last year’s AM exam. You need to know this

#8

Bear in mind that the definition of roll yield in the currency management reading is different from the definition of roll yield in the commodities reading.

And both are different from what they had in readings at Level I and Level II (which are, naturally enough, I suppose) different from each other).

Sigh.

The one I gave, above, is the customary definition of roll yield.

#9

I believe there is roll yield in currency and in bond E® calcs as well but not for commodities? Am I wrong here?

#10

I haven’t looked at commodities this year to see, so you may be correct.

And I’m too tired to bother now. Maybe in the morning.

#11

I flipped through the alts reading (albeit quickly). They mention that markets in backwardation and the roll yield effects of that briefly but do not offer the formula. Correct me if I’m wrong but I believe that you are not required to know that calculation for this years curriculum.

#12

Looks like no formula this year.

What a shame: easy points.