Calendar Spreads and the Forward Curve in Futures

Before you read: Futures Expiration, Rollover and Continuous Charts

What you will learn

• What a forward curve is and what contango and backwardation describe.
• How a futures calendar spread is the price difference between two months of the same contract.
• What roll yield means and why it shows up in long-term fund returns.

What is the forward curve?

If you plotted every contract month’s price on one line, what shape would it make?

The forward curve plots the prices of one futures contract across its listed months. In contango, later months are priced higher than nearer ones. In backwardation, later months are priced lower. The shape reflects storage and financing costs, supply and demand now versus later, and, for financial futures, interest rates and dividends.

What is a calendar spread?

Instead of the price of one month, what if you watched the gap between two months?

Declare the subtraction and the legs together. In this example S=near price−far price. One “long spread” means long 1 near contract and short 1 far contract of the same fictional product, each worth $10 per point per contract. Before costs, P&L=(change in near−change in far)×$10. Reversing the legs reverses that sign. “Widening” without a sign convention is ambiguous when spreads are negative.

These are two alternative future paths from the same entry, not consecutive exits for one position.

• A: near long gains (102−101)×10=$10; far short loses (103−103.5)×10=−$5. Net gross=$5, equivalently [−1.5−(−2)]×10. With fictional $2 fixed total costs for both legs’ whole round trip, net=$3. Both futures prices rose, but their different changes determine this spread’s result.
• B: near +$10; far (103−105)×10=−$20; gross −$10; after the same $2 fixed pair costs, −$12. Again both rose, but the signed spread moved against these legs.

A negative spread can increase toward zero while its absolute quote gap shrinks: A’s −2→−1.5 is profitable for these legs. It is not a bullish forecast on either contract. Exchange spread execution and margin credits are product-specific; no margin discount or reduced-loss guarantee is supplied by this subtraction.

What is roll yield?

If you keep replacing an expiring contract with a later one, what happens in contango?

A roll closes an old expiry and opens another; it does not exchange their full quoted notionals as a cash purchase. A visible intermonth gap is not automatically immediate realized loss. Subsequent price changes, exposure quantity, collateral income and costs determine returns.

Separate fictional long-exposure example: one contract, $10/point, constant quantity, no collateral interest or financing, no delivery complications. Let spot remain 100. At t0 the expiring contract is 100 and the farther contract 102. Assume the old long was entered at 100. Close that old long at 100 and open the far long at 102.

Assume $1 per contract transaction: old close $1, far open $1, far exit $1, total $3. The old contract’s earlier opening transaction is outside this stated roll-window cost calculation; it would add another cost if the measurement window included it. Combined net over this stated sequence=0−20−3=−$23. The loss arises as the held 102 contract later moves to 100, not because the chart jumped from old 100 to new 102 at the roll. The full quoted notional is not the futures margin deposit or cash paid for a stock purchase.

This unchanged-spot/convergence example isolates a negative carry/convergence contribution associated with this upward curve. It is not a general decomposition for every futures fund. If an otherwise comparable far contract instead begins 98 and later converges to 100, gross +$20 and net +$17 after these same three costs. If the 102 contract later settles 105 because spot changes, gross +$30 and net +$27: an initial contango label did not force a realized loss.

“Roll yield” is used for a return contribution/decomposition, not a guaranteed payment received on the roll. A fully funded fund also has collateral return, fees, exposure/rebalancing and spot/basis effects. Specify the capital denominator before quoting a percentage. Spot/curve persistence, settlement reference and convergence are explicit assumptions here, not assured future paths. See Futures Expiration, Rollover and Continuous Charts for the existing roll-versus-continuous-chart distinction.

Forward curve diagram

Signed subtraction and leg quantities determine spread P&L. The separate roll path earns/loses through later same-contract changes, not an instant profit/loss equal to the intermonth quote gap.

What this does not tell you about curves and spreads

• Where any month or spread will trade next.
• Real storage, financing or margin numbers. Check exchange and broker sources.
• Whether a fund’s roll will help or hurt in future. Curve shapes change.
• Nothing here suggests buying, selling or holding any contract or spread.

Check yourself

1. Why does case A gain while both legs rise?
2. At the instant of the roll, is there automatically a $20 quote-gap loss?
3. What changes if the far contract later settles 105?
4. In a separate snapshot of comparable futures on the same product, the near month is 100 and the later month 102. What is the curve classification, and is it a return forecast? Hint: which way does the line slope?
5. Why might opposing same-product calendar-spread legs receive a recognized margin offset, and why must one not promise less margin than one outright in every case? Hint: how do the two legs move?

Last reviewed November 8, 2026. Spotted a mistake? Report an error.