Contango
A condition in which futures prices are above the spot price, and later expiries are priced above nearer ones.
How it is identified
Test: Futures Price > Spot Price, with successively distant contracts priced progressively higher
Unit
qualitative
In depth
Contango is the normal state for financial futures, because carrying the underlying costs money and the futures price must reflect that financing. For commodities it additionally reflects storage and insurance. Its practical consequence appears in rolling strategies: a position rolled repeatedly in contango sells a cheaper near contract and buys a dearer far one, incurring a persistent cost known as negative roll yield. This is why commodity funds that hold futures can lose money over years in which the spot price rose. Contango is a description of the term structure, not a forecast of prices falling.
Worked example
Near-month futures at 24,138 and next-month at 24,280, against a spot of 24,000. Rolling from near to far each month costs 142 points, or 142 x 75 = ₹10,650 per lot per roll, regardless of what the index does.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Contango” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.