{"id":662606,"date":"2025-04-06T19:53:32","date_gmt":"2025-04-06T23:53:32","guid":{"rendered":"https:\/\/erickimphotography.com\/blog\/?p=662606"},"modified":"2025-04-06T19:53:35","modified_gmt":"2025-04-06T23:53:35","slug":"whats-contango-etymology","status":"publish","type":"post","link":"https:\/\/erickimphotography.com\/blog\/2025\/04\/06\/whats-contango-etymology\/","title":{"rendered":"What\u00e2\u20ac\u2122s contango, etymology"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\"><strong>Key Points<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>It seems likely that contango is when future prices for something (like VIX futures in VXX) are higher than today\u00e2\u20ac\u2122s prices, making it cost more to keep betting on the future.<\/li>\n\n\n\n<li>Research suggests it comes from old trading words in England, linked to waiting or continuing a deal.<\/li>\n\n\n\n<li>The evidence leans toward \u00e2\u20ac\u0153contango\u00e2\u20ac\u009d being a practical term that evolved from delaying delivery in markets.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>What is Contango?<\/strong><br>Contango is a situation in trading where the price to buy something in the future (called a futures contract) is higher than the price you\u00e2\u20ac\u2122d pay for it right now (the spot price). Imagine you\u00e2\u20ac\u2122re buying a toy today for $5, but if you agree to get it next month, it costs $6. That\u00e2\u20ac\u2122s contango\u00e2\u20ac\u201dit\u00e2\u20ac\u2122s like paying extra to wait.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For VXX, contango happens with VIX futures. Since VXX tracks these futures, it has to \u00e2\u20ac\u0153roll\u00e2\u20ac\u009d from cheaper, expiring contracts to more expensive ones further out. This can make VXX lose value over time, even if the market doesn\u00e2\u20ac\u2122t change much, because it\u00e2\u20ac\u2122s always buying the pricier future toy.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Etymology (Where the Word Comes From):<\/strong><br>The word \u00e2\u20ac\u0153contango\u00e2\u20ac\u009d comes from 19th-century England, used on the London Stock Exchange. It\u00e2\u20ac\u2122s thought to be short for \u00e2\u20ac\u0153continuation\u00e2\u20ac\u009d or \u00e2\u20ac\u0153contingent,\u00e2\u20ac\u009d tied to a fee traders paid to delay (or \u00e2\u20ac\u0153carry over\u00e2\u20ac\u009d) delivery of a stock or commodity to a later date. Back then, if you didn\u00e2\u20ac\u2122t want your goods right away, you\u00e2\u20ac\u2122d pay extra to wait, and that cost was called \u00e2\u20ac\u0153contango.\u00e2\u20ac\u009d It\u00e2\u20ac\u2122s like saying, \u00e2\u20ac\u0153Hold onto my toy for me, and I\u00e2\u20ac\u2122ll pay you a little more later.\u00e2\u20ac\u009d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Comprehensive Analysis on Contango and Its Etymology<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This section dives into what contango means in financial markets, particularly for instruments like VXX, and traces the origins of the word, blending practical explanation with historical linguistics. The analysis is based on current understanding as of April 6, 2025.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Definition and Mechanics of Contango<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Contango describes a market condition where the futures price of a commodity or financial instrument exceeds its current spot price, and this price difference typically widens as the delivery date gets further away (<a href=\"https:\/\/www.investopedia.com\/terms\/c\/contango.asp\">Contango Definition &#8211; Investopedia<\/a>). In simpler terms, it\u00e2\u20ac\u2122s when buying something for later costs more than buying it now.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For VXX, which tracks the S&amp;P 500 VIX Short-Term Futures Index, contango is a big deal. The VIX measures expected market volatility, and VIX futures are contracts betting on what the VIX will be in the future. Often, these futures are in contango\u00e2\u20ac\u201dmeaning the price for next month\u00e2\u20ac\u2122s VIX is higher than this month\u00e2\u20ac\u2122s. VXX maintains a constant 30-day exposure by rolling its futures: selling the expiring front-month contract (cheaper) and buying the next-month contract (more expensive). This rolling process incurs a cost, causing VXX to lose value over time if contango persists (<a href=\"https:\/\/www.projectfinance.com\/contango\/\">What is Contango? &#8211; projectfinance<\/a>).<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Think of it like this: You\u00e2\u20ac\u2122re at a candy store. A lollipop costs $1 today, but if you order it for next month, it\u00e2\u20ac\u2122s $1.20 because the store expects sugar prices to rise. Every month, VXX trades its $1 lollipop for a $1.20 one, losing a bit each time unless volatility spikes to offset the difference.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Why Contango Happens<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Contango is normal in many futures markets due to:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Cost of Carry:<\/strong> Storing goods (like oil or grain) costs money\u00e2\u20ac\u201dthink storage, insurance, or interest. Buyers pay more for future delivery to cover those costs (<a href=\"https:\/\/www.investopedia.com\/ask\/answers\/050715\/what-difference-between-contango-and-backwardation.asp\">Contango vs. Backwardation: What\u00e2\u20ac\u2122s the Difference? &#8211; Investopedia<\/a>).<\/li>\n\n\n\n<li><strong>Expectations:<\/strong> In VIX futures, contango often reflects a market belief that volatility will increase later. Since volatility is usually low but can spike, futures prices bake in that potential (<a href=\"https:\/\/corporatefinanceinstitute.com\/resources\/derivatives\/contango\/\">Contango Definition &#8211; Corporate Finance Institute<\/a>).<\/li>\n\n\n\n<li><strong>Supply and Demand:<\/strong> If more people want to buy futures than sell them, prices rise for later dates.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">For VXX, contango is frequent because VIX futures assume volatility reverts to a higher mean over time, even if current conditions are calm (<a href=\"https:\/\/www.sixfigureinvesting.com\/2010\/03\/vxx-calculations\/\">VXX: Contango Losses &#8211; Six Figure Investing<\/a>).<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Impact on VXX<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The contango effect is why VXX isn\u00e2\u20ac\u2122t great for holding long-term. For example, if the front-month VIX future is $15 and the next month is $16, rolling $10,000 worth of contracts means selling 666.67 units at $15 and buying only 625 units at $16\u00e2\u20ac\u201da loss of value unless the VIX itself rises sharply. Data shows VXX has lost significant value historically due to this roll cost, dropping from a split-adjusted $400+ at inception to around 74.85 recently (<a href=\"https:\/\/finance.yahoo.com\/quote\/VXX\/\">VXX Stock Price and Information<\/a>).<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Etymology of \u00e2\u20ac\u0153Contango\u00e2\u20ac\u009d<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The word \u00e2\u20ac\u0153contango\u00e2\u20ac\u009d has roots in 19th-century British financial markets, particularly the London Stock Exchange. Here\u00e2\u20ac\u2122s the breakdown:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Historical Use:<\/strong> In the 1850s, \u00e2\u20ac\u0153contango\u00e2\u20ac\u009d referred to a fee or premium paid by a buyer to postpone delivery of a stock or commodity to the next settlement date (usually fortnightly back then). This was common in stock trading, where a buyer might say, \u00e2\u20ac\u0153I\u00e2\u20ac\u2122ll take the shares later, but I\u00e2\u20ac\u2122ll pay you extra to wait.\u00e2\u20ac\u009d The term appeared in financial literature like David Morier Evans\u00e2\u20ac\u2122 <em>City Men and City Manners<\/em> (1853), describing it as a cost for \u00e2\u20ac\u0153continuing\u00e2\u20ac\u009d a deal (<a href=\"https:\/\/www.merriam-webster.com\/dictionary\/contango\">Contango &#8211; Merriam-Webster<\/a>).<\/li>\n\n\n\n<li><strong>Linguistic Origins:<\/strong>\n<ul class=\"wp-block-list\">\n<li>Most sources link \u00e2\u20ac\u0153contango\u00e2\u20ac\u009d to \u00e2\u20ac\u0153continuation,\u00e2\u20ac\u009d from the idea of extending or carrying over a contract. The Oxford English Dictionary (OED) suggests it\u00e2\u20ac\u2122s a shortening of this, used in brokers\u00e2\u20ac\u2122 slang (<a href=\"https:\/\/en.wiktionary.org\/wiki\/contango\">Contango &#8211; Wiktionary<\/a>).<\/li>\n\n\n\n<li>Another theory ties it to \u00e2\u20ac\u0153contingent,\u00e2\u20ac\u009d implying a conditional delay, though this is less supported (<a href=\"https:\/\/www.etymonline.com\/word\/contango\">Contango &#8211; Etymonline<\/a>).<\/li>\n\n\n\n<li>The \u00e2\u20ac\u0153-ango\u00e2\u20ac\u009d ending might echo other trade terms like \u00e2\u20ac\u0153tango\u00e2\u20ac\u009d (from Latin <em>tangere<\/em>, to touch), but it\u00e2\u20ac\u2122s likely just a phonetic fit for English traders.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Evolution:<\/strong> By the late 19th century, as futures markets grew, \u00e2\u20ac\u0153contango\u00e2\u20ac\u009d shifted from a fee to describe the upward-sloping futures curve we know today. It contrasted with \u00e2\u20ac\u0153backwardation,\u00e2\u20ac\u009d where spot prices exceed futures prices (<a href=\"https:\/\/www.ig.com\/en\/glossary-trading-terms\/contango-definition\">Contango Meaning &#8211; IG<\/a>).<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">For a 4-year-old: \u00e2\u20ac\u0153A long time ago, people trading toys in England said, \u00e2\u20ac\u02dcWait a bit before giving me my toy, and I\u00e2\u20ac\u2122ll pay more.\u00e2\u20ac\u2122 They called it \u00e2\u20ac\u02dccontango,\u00e2\u20ac\u2122 like asking to continue waiting.\u00e2\u20ac\u009d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Comparative Context: Contango vs. Backwardation<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><tbody><tr><td><strong>Aspect<\/strong><\/td><td><strong>Contango<\/strong><\/td><td><strong>Backwardation<\/strong><\/td><\/tr><tr><td><strong>Price Structure<\/strong><\/td><td>Futures &gt; Spot (e.g., $16 &gt; $15)<\/td><td>Spot &gt; Futures (e.g., $15 &gt; $14)<\/td><\/tr><tr><td><strong>Market Expectation<\/strong><\/td><td>Prices or volatility might rise later<\/td><td>Prices or volatility might drop later<\/td><\/tr><tr><td><strong>Impact on VXX<\/strong><\/td><td>Loses value over time due to roll cost<\/td><td>Gains value as futures converge to higher spot<\/td><\/tr><tr><td><strong>Example<\/strong><\/td><td>Paying more for next month\u00e2\u20ac\u2122s lollipop<\/td><td>Paying less for next month\u00e2\u20ac\u2122s lollipop<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">This table, based on sources like <a href=\"https:\/\/www.cmegroup.com\/education\/courses\/introduction-to-futures\/contango-and-backwardation.html\">Contango vs. Backwardation &#8211; CME Group<\/a>, clarifies contango\u00e2\u20ac\u2122s role in VXX\u00e2\u20ac\u2122s behavior.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Conclusion<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Contango is when future prices are higher than current ones, costing more to wait\u00e2\u20ac\u201dlike paying extra for a toy delivered later. For VXX, it means losing value over time unless volatility spikes. The word comes from old English trading, where \u00e2\u20ac\u0153contango\u00e2\u20ac\u009d meant paying to delay a deal, evolving from \u00e2\u20ac\u0153continuation\u00e2\u20ac\u009d into today\u00e2\u20ac\u2122s market term. It\u00e2\u20ac\u2122s a practical concept with a quirky history, showing how markets and words grow together.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Key Citations<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><a href=\"https:\/\/www.investopedia.com\/terms\/c\/contango.asp\">Contango Definition &#8211; Investopedia<\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/www.projectfinance.com\/contango\/\">What is Contango? &#8211; projectfinance<\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/www.investopedia.com\/ask\/answers\/050715\/what-difference-between-contango-and-backwardation.asp\">Contango vs. Backwardation: What\u00e2\u20ac\u2122s the Difference? &#8211; Investopedia<\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/corporatefinanceinstitute.com\/resources\/derivatives\/contango\/\">Contango Definition &#8211; Corporate Finance Institute<\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/www.merriam-webster.com\/dictionary\/contango\">Contango &#8211; Merriam-Webster<\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/en.wiktionary.org\/wiki\/contango\">Contango &#8211; Wiktionary<\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/www.etymonline.com\/word\/contango\">Contango &#8211; Etymonline<\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/www.ig.com\/en\/glossary-trading-terms\/contango-definition\">Contango Meaning &#8211; IG<\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/www.sixfigureinvesting.com\/2010\/03\/vxx-calculations\/\">VXX: Contango Losses &#8211; Six Figure Investing<\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/www.cmegroup.com\/education\/courses\/introduction-to-futures\/contango-and-backwardation.html\">Contango and Backwardation &#8211; CME Group<\/a><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Key Points What is Contango?Contango is a situation in trading where the price to buy something in the future (called a futures contract) is higher than the price you\u00e2\u20ac\u2122d pay for it right now \u2026<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"advanced_seo_description":"","jetpack_seo_html_title":"","jetpack_seo_noindex":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_ek_photo_artist_note":"","_ek_photo_thesis":"","_ek_photo_camera":"","_ek_photo_place":"","_ek_photo_human_moment":"","_ek_photo_sequence":"","_ek_photo_question":"","_ek_photo_canonical_claim":"","_ek_photo_ai_summary":"","_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[17],"tags":[],"class_list":["post-662606","post","type-post","status-publish","format-standard","hentry","category-posts"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/erickimphotography.com\/blog\/wp-json\/wp\/v2\/posts\/662606","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/erickimphotography.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/erickimphotography.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/erickimphotography.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/erickimphotography.com\/blog\/wp-json\/wp\/v2\/comments?post=662606"}],"version-history":[{"count":1,"href":"https:\/\/erickimphotography.com\/blog\/wp-json\/wp\/v2\/posts\/662606\/revisions"}],"predecessor-version":[{"id":662607,"href":"https:\/\/erickimphotography.com\/blog\/wp-json\/wp\/v2\/posts\/662606\/revisions\/662607"}],"wp:attachment":[{"href":"https:\/\/erickimphotography.com\/blog\/wp-json\/wp\/v2\/media?parent=662606"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/erickimphotography.com\/blog\/wp-json\/wp\/v2\/categories?post=662606"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/erickimphotography.com\/blog\/wp-json\/wp\/v2\/tags?post=662606"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}