Stack and Roll

Does anyone remember this term? Is it related to stack hedges? Anyone ready to stack and roll this exam? :slight_smile:

Yeah say I need 48,000 barrells of oil in 2 years, I can either buy 12,000 barrels per month or I can but 48,000 barrells in the current month futures contract and roll it over each month. By dealing with the current futures you have higher liquidity and lower costs.

are you on “CRACK” ?

Rudeboi Wrote: ------------------------------------------------------- > are you on “CRACK” ? Yes, on 7-4-3 Crack :slight_smile:

7 Oil futures, 4 Gas Futures and 3 Heating oil futures ???

say aloud: “that’s one bid-ask crack spread” he he

What’s a plumber’s crack spread?

How does it reduce the cost ?

derswap07 Wrote: ------------------------------------------------------- > How does it reduce the cost ? Long maturity futures might be very illiquid or non-existent at all

Wouldn’t transaction costs be higher since you are rolling them over monthly rather than only buying one future?

yes, transaction costs will be higher, but what can you do, if you dont have long futures available?

but if its in Backwardation you will be gaining on the contract offsetting costs.