Can anyone pls tell me what should I respond when asked >>> “where’s the roll trading?” The situationis that my client is doing roll over index futures from near to far expiration month. Thx in advanc !
He shouldn’t be concerned about where the roll for index futures is trading. The roll is just the difference in price between the nearby contract and the forward contract. Thus, if S&P’s are trading at 1484 for Sep 07 and 1494 for Dec 07, then the roll is trading at 10 (this is probably the roll he is doing). For index futures the roll isn’t very interesting because it’s just about interest and dividend rate for the underlier. Since dividends are controlled by corporations not traders, the roll refelcts something like the “risk-free” rate used by futures traders. This is something like the repo rate so his question pretty much amounts to “what’s the repo rate?” In the normal course of things, I would explain that and conclude “look it up yourself a-hole”. Now for deliverable commodities, “where’s the roll trading? (and why?)” is a really important question. Your client is an equity indexer who wants to sound cool. Edit: If you say trading at 10, I bet he asks whether it’s backwardated or contango… (and the asnwer is ______)
I think your client is talking about a futures spread. Index funds go long futures (generally) and right now, maybe they’re long the august, september or november futures month, depending on the product. The august contracts are going into delivery so the fund needs to sell the Aug contracts and buy contracts further out in time. The difference between the Aug futures price and further out futures price is the spread, and I’m guessing that is what your client wants to know… Oh you said index futures not index funds. Read what Joey said above.
when someone says they want to roll futures that means (to me) they are short/long futures that are expiring and do not want deliver/take delivery anything, so they just roll them out to the next most liquid futures, close position in expiring futures and open new position in future ones…, think roll short in TYU7’s to TYZ7s, (10 year bond)
JoeyDVivre Wrote: ------------------------------------------------------- > Now for deliverable commodities, “where’s the roll > trading? (and why?)” is a really important > question. Your client is an equity indexer who > wants to sound cool. > > Edit: If you say trading at 10, I bet he asks > whether it’s backwardated or contango… (and the > asnwer is ______) The answer is it depends on the commodity. Crude oil is backwardated and natural gas futures are in contango.