1) Due to recent events in the oil futures market, I thought it could be a good idea to explain what roll yield is and why knowing where the price (of a commodity) is going is not enough.

(Meme for attention)

2) ...And if you think you understand how it works this thread is not for you but for the investors thinking they made a good bet when buying the United States Oil Fund (yes, I’m talking to you).

3) To understand the concept of roll yield, we need first to understand the difference between the price of a future and the spot price of a commodity. When discussing the price of a commodity, we have to separate the spot price from futures prices.

4) The spot price is the local cash price for immediate delivery of the commodity.

Roll yield = Futures Return - Spot Return