Answer-first summary for fast verification
Answer: c) The short should deliver as early as possible after the FIRST NOTICE DAY
In **backwardation**, the term structure is downward sloping, so earlier delivery is generally more attractive to the short. For a futures contract on a consumption commodity, the short typically prefers to deliver **as early as possible after the first notice day**. **Why C is correct:** - Backwardation implies later delivery dates are less attractive for the short. - The short can improve the economics of delivery by acting early. **Why the other options are wrong:** - **A**: Timing does matter. - **B**: The short often has a delivery window, not only a single day. - **D**: Late delivery is more associated with contango, not backwardation.
Author: Manit Arora
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Q-150.1. If the forward curve for a consumption commodity exhibits backwardation, when should the short position in a futures contract elect to make physical delivery?
A
a) It makes no difference when, as long as the short delivers within the allowable period
B
b) The short does not have a choice as delivery must be made on the DELIVERY DAY
C
c) The short should deliver as early as possible after the FIRST NOTICE DAY
D
d) The short should deliver as late as possible
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