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.