Do the gain and loss during futures rollover each month will be even out in long run?

Question

For example, I am using a buy and hold strategy for commodities futures. When spot month close to expiry, I rollover my contract to next month.

However, the next month contract are usually wont equal price with the spot month, which would result in some gain or loss.

For example: if I close my long position of spot month at price $2000, and roll to next month to buy at $2010, I am paying extra $10 in the rollover.

Another case is, if I close my spot month long position at $2000, and roll to next month to buy at $1990, I earned $10 in the rollover.

Technically, I didn't pay or earn extra $10, but currently I am running a backtest on a strategy which did not factor in rollover cost. I am wonder, in the long run, will they even out?

ThatDataGuy · Accepted Answer

I am wonder, in the long run, will they even out?

The short answer, is no.
It depends on the specific microstructure of both the underlying and futures market. For some markets, avoiding expiry requires a consistent premiuim, for others its a carry trade.

PabTorre · Answer

There are 2 schools of thought in determining the price of a future contract in a day prior to expiration.
The cost of carry model, states that the price of a future contract today is the spot price plus the cost of carrying the underlying asset until expiration minus the return that can be obtained from carrying the underlying asset.

FuturePrice = SpotPrice + (CarryCost - CarryReturn)

The expectancy model, states that the price of the futures contract depends on the expectation about the spot market's price in the future. In this case, the price of the future contract will diverge from the spot price depending on how much the price is expected to rise or fall before expiration.
A few glossary terms:

cost of carry
For physical commodities such as grains and metals, the cost of
storage space, insurance, and finance charges incurred by holding a
physical commodity. In interest rate futures markets, it refers to the
differential between the yield on a cash instrument and the cost of
funds necessary to buy the instrument. Also referred to as carrying
charge.
spot price
The price at which a physical commodity for immediate
delivery is selling at a given time and place. The cash price.

Do the gain and loss during futures rollover each month will be even out in long run?

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