Trade · 6 pages · 12 min
How warehousing earns a carry
Storing a commodity earns a carry when a later price covers storage, insurance, and the cost of money.
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From the opening
Warehousing earns a carry when the price for later delivery sits high enough above the nearby price to pay for holding the goods. The holder buys or keeps the physical commodity, stores it, and sells the later delivery, so time itself is what the spread is pricing. The opening covers later price minus nearby price, storage and interest set full carry, and the holder sells the deferred month.
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Inside
- Later price minus nearby price
- Storage and interest set full carry
- The holder sells the deferred month
- A tight nearby market reverses it
- Where the idea stops applying
- A distinction worth keeping
Sources
- Cost of carry
- Full carry and commodity storage