Bone, I agree that the analysis you suggested earlier would be interesting and likely quite valuable and certainly worthy of it's own thread (which I'll probably start). But, it has nothing to do with the question I asked and that both you and Mav responded to. Mav said that a futures calendar spread defined, by Leg1-Leg2, could be defined as being in contano/backwardation based on the relationship of Leg1 to Leg2. My question was: could you say that yes/no a futures butterfly spread, as defined by (Leg1 - (2 * Leg2) + Leg3), was in backardation/contango based on a relationship between the legs and if yes what is that relationship. It's not a particularly important question but one that no one (so far) has yet to answer. I'm the proverbial dog with a bone Maybe the answer is yes, maybe no, maybe back/con doesn't make sense for a butterfly ... maybe. Just asking.
I did answer it. It's the curve itself that is in contango, not the spread. The spread is the "tool" used to trade the contango.
You can safely say that the wings of the spread (leg1 vs leg3) are in contango or backwardation, although it's not commonly defined that way. The body (2 x leg2) is traded for reversion towards the wings, so I would ignore the body for this narrow purpose. Which prompts the question, what is your purpose in characterizing the fly in this manner?
No purpose at all other than just curious. If you can use the term in relation to a calendar just wondered, for no particular reason, if it also applied to other spread constructs like a fly or condor.
Mav, I'd like to explore the concept you described of the curve, represented by the tradeable spread, being in contango. Apologies for being kinda of a pain regarding this subject but it's not quite clear to me yet and I need to ask questions in a manner that makes sense to me. I realize that I may be missing the bigger, more important picture described by you and Bone. Probably little chance that I'm not missing the bigger picture. At https://en.wikipedia.org/wiki/Contango Contango is defined as "Contango is a situation where the futures price (or forward price) of a commodity is higher than the spot price." By this definition, it seems to me that the futures price being above the spot requires you to use two discreet values at a specific point in time to make a determination as to whether a market is in contango. Mav, you described the "curve itself" being in contango. To my mind a curve is a sequence of points. Could you elaborate a bit more on what it means for the curve to be in contango. Again, I know I'm missing the bigger picture. Thanks for your, and Bone's patience. Thanks