I'm trying to get my head around contango and backwardation in WTI futures, specifically how traders actually use that information beyond just knowing the market structure. Are you folks actually trading spreads or just using it as a directional bias confirmation?
It's definitely used for both. Beyond just confirming directional bias, a lot of traders will absolutely structure spreads to capitalize on contango or backwardation, either calendar spreads or even more complex inter-commodity spreads if other related products are misaligned.
For many, it's primarily about spread trading, specifically calendar spreads. If you believe the market is overstating future demand or supply, you can profit from the shape of the curve correcting. Directional bias is a component, but the curve's shape itself offers more nuanced opportunities.
It's funny, every 'newbie' asks this. Many are indeed trading spreads – the ol' roll yield – but some certainly use it as a directional hint. If the market's paying you to hold, it's probably feeling pretty good about the future, right?