RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

Daily Futures Trading Update

Roll Over Time

Posted 08/21/2017 10:16AM CT | Laura Taylor

We are at the time in the year when one month will be expiring and another month will become the front month.  For example:  August 31  is FIRST NOTICE DAY for September grain contracts.

What this means is that if you are long a September grain contract from August 31 through the expiration of that contract on September 14, you are susceptible to delivery.  Delivery assignments are based on the original date of purchase.  When delivery requests are made to the Exchange they will match that request with the oldest position. If your date is elected you have the option of taking delivery of the contract in its physical form or to RETENDER.  Unless you are a hedger, you more than likely have no intention of filling your garage with 5000 bushels of corn, wheat, beans etc.  In order to retender, you will have to pay the Delivery Invoice Fee, overnight storage fee and any other costs associated with the delivery, and the following day you can sell the September contract in the futures market.  In order to avoid the extra fees, the best and simplest thing to do is to roll over your position prior to the first notice day.  If your intention is to remain LONG that particular contract going forward, you can roll your positions by placing an order to sell the September contract and simultaneously buy the next active month.  With one order you will exit your deliverable contract and establish your continuation trade in the next month.  The spread order will be filled based on the price differential between the two months.  If the two months are trading five cents apart, the fill prices on your spread order will also be five cents apart.  The prices may not match the prices on your quote screen because spreads are fixed in the system electronically and ready to be  filled using the previous day’s closing price in the near month (Sept) and computing the price differential to calculate where the farther out month should be filled.  As an example: If you were selling the September corn and buying the December corn on a roll over spread, based on the two months trading at a five cent differential you would be filled at the following prices no matter what your screen tells you. Sold September corn at 352 (the previous day’s closing price) and Bought the December Corn at 357 which is based on the five cent differential. You should never leg in or leg out of a spread.  You take the risk of not being filled on one side or you may become victim to extreme slippage caused by a fast moving market.  

I used the grains in my example above.  There are certain markets that are not deliverable but can be rolled to the next month the same way. 

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Laura Taylor

Senior Market Strategist
Laura began her career in the financial industry in 1981. In 1985 Laura and some former colleagues developed and organized a new IB division at Index Futures Group. With a partner, she named the division (Brokers Resource Corp.), developed the client base and supervised a staff that serviced guaranteed and non-guaranteed IBs located across the country. She developed the in-house procedures manual and conducted on-site compliance audits. I was also one of the original co-founders of the National IB Association (NIBA) and hosted the very first NIBA conference in Chicago. After Index Futures Group sold their IB division Laura stayed on to manage the new accounts department as vice president of operations and then became their director of compliance. In 1996, as part of ED&F Man, Laura decided to venture into a new role in the commodity industry by putting her AP license to work by developing a client base as a commodities broker. Laura joined RJO Futures in 2011 where she enjoys being a senior commodities broker assisting clients with their trading decisions, the execution of their trades and specializing in automated trading for newsletter and hotline subscribers.
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