{"id":6571,"date":"2025-01-22T10:52:46","date_gmt":"2025-01-22T10:52:46","guid":{"rendered":"https:\/\/www.alcircle.com\/blog\/?p=6571"},"modified":"2025-01-22T10:53:08","modified_gmt":"2025-01-22T10:53:08","slug":"hedging-with-jorge-episode25-understanding-borrowing-in-contango","status":"publish","type":"post","link":"https:\/\/www.alcircle.com\/blog\/hedging-with-jorge-episode25-understanding-borrowing-in-contango","title":{"rendered":"Hedging with Jorge #Episode25: Understanding borrowing in Contango"},"content":{"rendered":"\n<p>In our previous discussion, we explored the concept of borrowing carry trades to anticipate long positions. Let\u2019s dive deeper into how borrowing works in a contango market and why it often leads to profit.<\/p>\n\n\n\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\"><div class=\"wp-block-embed__wrapper\">\n<iframe loading=\"lazy\" title=\"Hedging with Jorge #Episode25: Understanding borrowing in Contango\" width=\"696\" height=\"392\" src=\"https:\/\/www.youtube.com\/embed\/hhc8G6OOB2c?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n<\/div><\/figure>\n\n\n\n<p><\/p>\n\n\n\n<p><strong>Borrowing and Long Positions in Contango<\/strong><\/p>\n\n\n\n<p>Imagine this scenario: we\u2019re holding a long position for April but need to shift it earlier to March. To achieve this, we sell our April position and buy for March. This process\u2014buying an earlier position while selling a later one, is borrowing.<\/p>\n\n\n\n<p>Now, when the market is in contango (where future prices are higher than current or earlier prices), this strategy can be profitable. Why? Because the price for March is typically lower than April. By purchasing March at a lower cost and selling April at a higher price, you capitalize on the price difference, effectively making money.<\/p>\n\n\n\n<p><strong>The Rule: Borrowing in Contango = Profit<\/strong><\/p>\n\n\n\n<p><strong>Here\u2019s a simple takeaway:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>If you\u2019re long in April but need to be long in March, borrowing in contango means buying March at a lower price and selling April at a higher price.<\/li>\n\n\n\n<li>If you\u2019re short in April and need to be short in May, you\u2019ll buy April and sell May, also profiting from the contango curve.<\/li>\n<\/ul>\n\n\n\n<p><strong>A Teaser for Next Time<\/strong><\/p>\n\n\n\n<p>What happens when there\u2019s an evacuation or significant market disruption? Stay tuned, and we\u2019ll explore how it impacts borrowing strategies in our next discussion. Until then, remember: borrowing in contango often means you\u2019re in the money.<\/p>\n\n\n\n<p>See you next time!<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In our previous discussion, we explored the concept of borrowing carry trades to anticipate long positions. Let\u2019s dive deeper into how borrowing works in a contango market and why it often leads to profit. Borrowing and Long Positions in Contango Imagine this scenario: we\u2019re holding a long position for April but need to shift it [&hellip;]<\/p>\n","protected":false},"author":89,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":{"0":"post-6571","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-open-forum-for-aluminum-community-blog"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Understanding borrowing in Contango<\/title>\n<meta name=\"description\" content=\"Let\u2019s dive deeper into how borrowing works in a contango market and why it often leads to profit\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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