Contango and Roll Yield - Quant Trader Interview Question
Difficulty: Easy
Category: Finance
Practice quant interview questions from top firms including Jane Street, Citadel, Two Sigma, DE Shaw, and other leading quantitative finance companies.
Topics: futures, contango, backwardation, roll-yield, trading-strategy
Problem Description
The current spot price of West Texas Intermediate (WTI) crude oil is 70 dollars per barrel. The one-month futures contract for WTI is trading at 75 dollars per barrel.
Is the crude oil market in contango or backwardation? What is the implication of this market structure for a trader implementing a long futures roll strategy, where they consistently hold a long position in the front-month futures contract and roll it forward each month?
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