How Can a Trader Profit from a Strong Contango Market Using a ‘Cash and Carry’ Trade?

In a strong contango market, the futures price is significantly higher than the spot price. A trader profits by simultaneously buying the spot asset and selling a futures contract.

They hold the spot asset until the futures contract expires. As the contract nears expiration, the futures price converges with the spot price.

The profit is the initial difference (the basis) minus the cost of carry. This is a market-neutral strategy.