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ES Backwardation


Discussion in Emini and Emicro Index

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ES Backwardation

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Posts: 135 since Dec 2013

Can someone please explain why the ES has backwardation? I have never understood what is up with that. It doesn't make sense because the S&P isn't a normal commodity.

Doesn't it give a bit of an advantage to long term holders of long ES positions vs long term shorts? Doesn't make much sense to me...

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MedianVelocity View Post
Can someone please explain why the ES has backwardation? I have never understood what is up with that. It doesn't make sense because the S&P isn't a normal commodity.

Doesn't it give a bit of an advantage to long term holders of long ES positions vs long term shorts? Doesn't make much sense to me...


backwardation is a commodity term, when you refer to an index like the spx or vix, it is commonly referred to as an inverted term structure. the reason the spx is inverted is because interest rates are near zero, and fair-value basis has turned negative. cash is more valuable than than futures because you can earn income from the dividends of the underlying stocks in the index, but you don't have any opportunity cost that you're saving by buying the futures - because the alternative reinvestment rate on that cash is zero. the further out you go on the curve, the more negative the basis

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