Been looking at copper $HG_F lately, trying to get my head around the various futures contracts. I understand contango/backwardation, but the carry vs. roll return concept is still a bit hazy for me. Specifically, how do you practically factor that into longer-term positions? Do you adjust your position size based on anticipated roll costs, or is it more of a P&L drag you just accept?
For longer-term positions in copper, many traders treat roll cost more as a drag. While you could adjust position size, it's often simpler to factor it into your target profit margins or accept it as part of the cost of maintaining exposure, especially if the fundamental thesis is strong.
It's definitely a nuanced area. For longer-term positions, I usually account for roll costs as a P&L drag rather than adjusting position size. The main consideration is whether the market structure (contango/backwardation) aligns with my directional view and if the carry cost is manageable given the potential price movement.
Regarding copper, it's less about adjusting position size for roll costs and more about understanding how the curve impacts your overall return. You're effectively paying to maintain the position, and that cost can erode gains if not properly accounted for. Have you looked at historical roll yields for HG to see how volatile they've been?