Chartered Financial Analyst Level 2
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14 If the calendar spread in the futures market is positive, then the:
Exam-Like
A
A spot price is above the price of the near-term futures contract.
B
B spot price is above the price of the longer-term futures contract.
C
C price of the near-term futures contract is above the price of the longer-term futures contract.
Explanation:
Explanation
If the calendar spread in the futures market is positive:
- The price of the near-term futures contract is above the price of the longer-term futures contract - This is correct. A positive calendar spread means near-term futures trade at a premium to longer-term futures
- Spot price is above the price of the near-term futures contract - This would indicate backwardation, not a positive calendar spread
- Spot price is above the price of the longer-term futures contract - This is not the definition of a positive calendar spread
A positive calendar spread occurs when near-term futures prices are higher than longer-term futures prices, which is characteristic of backwardation markets.
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