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The Option Alpha Podcast

141: Ultimate Guide To Contango And Backwardation Option Pricing

The Option Alpha Podcast

Kirk Du Plessis

Education, Options Trading, Trading, Investing, Stock Market, Business, Finance

4.81.2K Ratings

🗓️ 29 August 2018

⏱️ 28 minutes

🧾️ Download transcript

Summary

Show notes: http://optionalpha.com/show141 In the futures trading world, there are two words that sound cool to say but also might be very confusing for new traders; contango and backwardation. Yet, both of these future pricing concepts are very easy to understand once you know the relationship between three key items. In today's podcast, I want to slowly walk through the concept of contango and backwardation while offering a couple different examples to show you how it works in real life and...

Transcript

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0:00.0

You're listening to the Option Alpha Podcast from Option Alpha.com where we show you how to make

0:06.3

smarter trades learn how the stock market really works and generate consistent monthly

0:11.2

income. Now your host and head trader at option alpha.com Kirk depluses.

0:17.0

Hey everyone this Kirk here again from option alpha.com working every single week to make this the most popular investing podcast offered online and in iTunes because it's based on one thing and one thing only and that's helping you guys make smart trades.

0:32.1

So again, welcome to the show today.

0:34.1

Show number 141, we are going to be diving deep

0:36.6

into understanding how can tango and backwardation work

0:41.2

and how it might affect how options potentially are priced or

0:44.4

how you can actually trade options around these types of environments if you can gain

0:48.4

any edge from this or not or if it's just you know mostly a lot of hot air

0:51.8

stuff.

0:52.6

So I want to start with this conversation.

0:55.0

And again, all of this will be in the show notes

0:56.8

at optionoff.com slash show 141, just the number 141.

1:00.8

But I want to truly start with this conversation about three things and I guess the three things that really kind of lead into this discussion

1:08.0

I know this is going to be a little bit more of a high-level talk because many people when they start trading this is probably the least in their list of you know

1:15.3

required reading or required listening right and I get that but I want to cover these topics because they come up

1:20.9

often enough that I want to have a resource for you guys to understand

1:24.4

what's going on, what happens, it's not that complicated actually to understand.

1:28.4

And then how we might be able to use some of this, you know, this continuum

1:32.7

backwardation as we think about different markets

1:35.7

as maybe a trigger to say, you know, okay,

...

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