Stack and Roll

CFA Level III
#1

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

#2

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.

#3

are you on “CRACK” ?

#4

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

#5

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

#6

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

#7

What’s a plumber’s crack spread?

#8

How does it reduce the cost ?

#9

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

#10

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

#11

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

#12

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