Term-Structure Roll Yield in Crude
In backwardation, the futures curve slopes down and a long position rolls 'up the curve' into cheaper contracts — earning positive roll yield independent of spot direction. You are paid to hold the shape of the curve, not to guess the price of oil.
Setup & Rules
Engage only when front-month backwardation is steep and persistent. Trade the curve via calendar spreads rather than outright to isolate the roll from flat-price volatility.
Entry
Establish the calendar when the roll yield exceeds a threshold and inventories confirm tightness. Enter as a spread order to avoid legging risk.
Exit
Exit when the curve flattens toward contango or the roll yield decays below cost. The curve shape — not a price target — is the signal on both sides.
Risk Management
Spreads are lower-variance than outrights but still gap on inventory and OPEC surprises. Size by spread volatility and cap around scheduled inventory and policy events.
Portfolio Management
A genuine diversifier — its P&L is driven by curve shape, largely orthogonal to equity beta. A useful counterweight when the rest of the book is risk-on.
Evidence
Backtested only so far: 55% of positions positive, +0.6 average R, trend rising as the curve has stayed backwardated. Small live sample keeps its Conviction Index suppressed for now.
Flywheel Automation
Curve monitoring feeds a spread executor on Tradovate; at Backtested maturity pending a larger paper sample. Latency-tolerant, so failover is standard rather than critical.