Roll Yield

Roll yield is the return generated by the passage of time as a futures or options contract moves toward its expiration date. It occurs when a trader closes a position in a near-term contract and opens one in a longer-term contract, profiting from the difference in prices.

In a contango market, roll yield is often negative because the investor buys high and sells low when rolling forward. Conversely, in backwardation, roll yield is positive as the investor captures the price convergence toward the spot price.

This mechanism is central to the profitability of many derivative-based investment strategies. It requires careful monitoring of the term structure to ensure that the cost of rolling does not erode total returns.

Understanding roll yield is essential for long-term holders of crypto-derivative instruments. It represents the passive income component of a derivative strategy.