{"id":6591,"date":"2025-01-28T08:04:10","date_gmt":"2025-01-28T08:04:10","guid":{"rendered":"https:\/\/www.alcircle.com\/blog\/?p=6591"},"modified":"2025-01-28T08:04:22","modified_gmt":"2025-01-28T08:04:22","slug":"hedging-with-jorge-episide27-when-the-market-is-in-contango","status":"publish","type":"post","link":"https:\/\/www.alcircle.com\/blog\/hedging-with-jorge-episide27-when-the-market-is-in-contango","title":{"rendered":"Hedging with Jorge #Episide27: When the market is in Contango"},"content":{"rendered":"\n<p>In our last discussion, we explored the concept of lending and walked through an example of selling March and buying April. This time, let\u2019s dive into what happens when the market is in contango, a situation where prices for future contracts are higher than nearby prices.<\/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 #Episide27: When the market is in Contango\" width=\"696\" height=\"392\" src=\"https:\/\/www.youtube.com\/embed\/j5-rsHWrDyg?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>What is Contango?<\/strong><\/p>\n\n\n\n<p>Simply put, contango occurs when the future price of a commodity (e.g., April) is higher than its current or nearby price (e.g., March). This price curve reflects expectations of higher costs in the future, driven by factors like storage, insurance, or market sentiment.<\/p>\n\n\n\n<p><strong>The March-April Scenario<\/strong><\/p>\n\n\n\n<p>Now, imagine you\u2019re selling March and buying April. In a contango scenario:<\/p>\n\n\n\n<p>April prices are higher than March prices.<\/p>\n\n\n\n<p>If you are long in March and need to stay long in April, selling March and buying April will result in a loss because you\u2019re buying at a higher price.<\/p>\n\n\n\n<p>For example, in the aluminium market, a typical contango spread (cash-to-threes) might be $30 or more. But recently, this spread narrowed to just $7. The cost of contango\u2014and your potential loss\u2014depends heavily on the size of this spread. A smaller contango means lower costs, while a wider contango increases the financial burden.<\/p>\n\n\n\n<p><strong>Is This Good or Bad?<\/strong><\/p>\n\n\n\n<p>The answer depends on your trading strategy and market conditions. Contango isn\u2019t inherently good or bad\u2014it\u2019s simply a market dynamic you need to account for when planning your trades.<\/p>\n\n\n\n<p><strong>What\u2019s Next?<\/strong><\/p>\n\n\n\n<p>We\u2019re only scratching the surface of lending and contango dynamics. In our next session, we\u2019ll dive deeper into this topic and explore strategies to navigate these situations effectively.<\/p>\n\n\n\n<p>Stay tuned for more insights, and let\u2019s continue mastering the complexities of aluminium trading!<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In our last discussion, we explored the concept of lending and walked through an example of selling March and buying April. This time, let\u2019s dive into what happens when the market is in contango, a situation where prices for future contracts are higher than nearby prices. What is Contango? Simply put, contango occurs when the [&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-6591","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>When the market is in Contango<\/title>\n<meta name=\"description\" content=\"This price curve reflects expectations of higher costs in the future, driven by factors like storage, insurance, or market sentiment.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.alcircle.com\/blog\/hedging-with-jorge-episide27-when-the-market-is-in-contango\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"When the market is in Contango\" \/>\n<meta property=\"og:description\" content=\"This price curve reflects expectations of higher costs in the future, driven by factors like storage, insurance, or market sentiment.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.alcircle.com\/blog\/hedging-with-jorge-episide27-when-the-market-is-in-contango\" \/>\n<meta property=\"og:site_name\" content=\"AL Circle Blog\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/AlCircle\" \/>\n<meta property=\"article:published_time\" content=\"2025-01-28T08:04:10+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2025-01-28T08:04:22+00:00\" \/>\n<meta name=\"author\" content=\"Jorge Eduardo Dyszel\" \/>\n<meta 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