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I am wondering how do I compare two futures of different lengths. Let's say I am to need to buy a future for a year and I can buy two kinds of futures, one for half a year which is x higher than the spot price and another for a quarter which is y higher than the spot price. I need to choose which is better for me (for simplicity we can assume in half a year I will have the other asset, so I care only on cost over spot and such things at the moment of the purchase).

Just comparing the per quarter gain\loss I will have from each of the futures for a quarter may not be enough, as I don't know what will be the premium of the new quarterly future following (or do I? do I have an expectation?). Is there something optimal to do? (e.g. buy the best one in terms of a quarter and do something sophisticated when the new quarterly is created?)

Thank you very much!

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There are two purposes for futures contracts:

  • speculation
  • reduction of price risk (locking in a price)

Unless you have specific knowledge that the market does not have, futures are not about making a profit. They are about locking in a price in the future, eliminating price risk.

If you need to buy a product in 6 months and want to lock in a price, then you should buy a 6-month future. You could buy a 3-month future (presumably at a slightly lower price), but what if the spot price jumps in the next 3 months? Your remaining 3-month future will then be at a higher price, and you have no protection against that.

  • I talk about the latter. Thanks for the answer, I might rephrase my question as I thought it does not matter, my actual time is longer than any one contract, so I will have to buy more than one anyway. The question is how to do it smartly, and perhaps are there times I should switch between them as one became better than the other. – borgr Dec 24 '18 at 17:15

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