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Volatility
Contango and Backwardation
Two intimidating words that describe one simple thing: whether futures further out cost more or less than the ones nearby. That shape quietly drives a lot, especially in volatility products.
NoVo Options Trading · 2026
cost of carry). Backwardation often signals near-term scarcity or fear — people pay up for the asset
now, so the front month trades richer than later ones.
The roll cost
The curve's shape matters most when a position must be "rolled" from an expiring contract to the next. In contango, you sell low (expiring) and buy high (next month) — a persistent roll cost that bleeds a held long position. In backwardation, the roll pays you (why held products decay).
Contango is a slow tax on holding; backwardation is a small subsidy. Ignore the curve's shape and it'll quietly rewrite your returns.
Why it matters for volatility products
VIX futures are usually in contango (the market normally prices future volatility higher than spot), so VIX-based ETPs suffer chronic roll decay — a big reason long-volatility products bleed over time (the VIX, the volatility risk premium). If you touch any futures-based product, the curve is not optional reading.
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NoVo is a software tool for market analysis and for executing trades you initiate, not financial advice. This article is general education, not investment advice. Options trading involves substantial risk of loss, up to and including your entire capital. NoVo makes no guarantee of profit, win rate, or performance, and past results do not predict future outcomes. You are responsible for your own broker account, configuration, and trading decisions.