First, let's talk about the principle (if you don't understand, you can directly look at the last example):
In our country, futures contracts are generally divided into delivery periods of 30 days, 60 days, 90 days, 120 days, 150 days, and 180 days. The first two are considered near-term futures, while the latter four are considered far-term futures.
So what are the characteristics of near-term and far-term futures prices?
When an event occurs, the impact on near-term futures prices is greater than that on far-term futures. Why is that?
Let me give an example from recent years; for instance, on the first day of the Russia-Ukraine war, everyone knows gold will rise. Near-term futures, due to their leverage characteristics, large volume, and ease of trading, have a significant increase (price difference/time until delivery) (you can buy and sell thousands of contracts of gold with just a few clicks on major exchanges), while far-term futures mostly have limited increases due to off-exchange trading and liquidity (only a few trading markets have far-term contracts).
As the impact of major events diminishes and numerous arbitrageurs exist, the price difference between the two will definitely return to the levels before the sudden event; it will definitely return before the sudden event, otherwise, the futures and spot prices will not align at delivery, which contradicts financial theorems (remember that theorems are not rules; rules can be broken, but theorems cannot, e.g., gold must always be more expensive than silver, because the reserves of silver far exceed those of gold).
Therefore, we can use this pattern.
After a major event occurs, when the near and far-term price differences surge, we should hedge towards the direction of price convergence.
If you don't understand, just look at my actual example: for instance, on July 21, a certain commodity surged due to near-term futures for some reasons, and the price difference between the May 2025 futures and the September 2024 futures reached 6.061%.
So we will go short on the March (next year) futures and long on the September (this year) futures. Let's see what happens in a month.
The price difference has indeed converged; it can be seen that the profit is 6.061 - 5.394 = 0.667%.
If we add leverage, with the maximum leverage for futures being 30 times, then the return is 20.01%.
Of course, this strategy has two drawbacks:
One is that we must wait until a major event occurs and the price difference exceeds the usual level before opening a position; if there is no major event, we just keep waiting.
Secondly, after a major event occurs, there may be an even larger event, leading to a greater price divergence, resulting in unrealized losses.
For the two drawbacks, we have two corresponding solutions:
1. Look for multiple varieties, not limited to a single variety, to increase the frequency of opening positions.
Secondly, ① because futures are anchored to spot prices, we can confidently hold positions; the price difference won't spike too absurdly (even during the negative prices of oil, the difference between near-term and far-term prices did not exceed three times the usual).
② If we hold until the near-term futures delivery, we can only switch to the next contract (which requires paying the transaction fee again). The long-term and next-long-term contracts will hedge until the impact of the event is eliminated, and the price difference restores, which can yield profit.
Summary: This is a strategy of exchanging time for money; as long as you can wait for the impact of the event to dissipate, you will definitely earn from the converging price difference.
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