How To Handle Rollovers

Hi guys, today we are going to talk about rollover management.

I am Francesco Placci, in charge of the research and development at the Unger Academy.

Many of you have asked us what is the optimal method to handling rollovers.

Well today, we see together a simple method that I'm sure will help many of you.

Why managing Rollovers can be difficult?

First of all, there are objective difficulties in keeping many different expirations under control.

As systematic traders, we can work on many instruments at the same time, unlike the discretionary traders who, more than 4 or 5 open positions, cannot keep under control.

So this is the first reason.

Another aspect is that futures have different rollover rules, there are those that roll every three months, others all months, then we have to choose which tool to use to monitor the expiration.

For example, I can use the CME website for futures that are listed on that market, then I have to move to the ICE website for the futures that are listed there and then for example on the website of Eurex.

You understand that this is not the most practical thing to do.

So I wondered what was the best way to be able to easily manage and keep this situation under control.

The easiest solution

The simplest solution that came to my mind is to use DWS, the Interactive Broker platform.

As you can see, a simple layout gives us the most important information to understand whether or not it is time to perform a rollover or to make us understand if in a few days there may be the event that advises us to change the future on which to trade.

As you can see I have divided the different futures by their financial sector: metals, energy, bonds, and so on and I have included in this layout, the essential information to understand if the rollover is to be carried out or not.

So the "Days To The Last Trading Day" as you can see here, for example, 58, the open interest and the volume.

For each underline I've entered more than one contract in order to compare the open interest and the volume values with each other.

These two expiration is the indicator that makes me turn on the alarm bell telling me: "Look we are close to the rollover!".

Let's take an example to replicate the method

Let's take an example of gold future.

The March contract has 26 days to expire, then we have April and May.

You see that the largest open interest is on the April expiration, as well as the largest volumes.

So it's clear that this future had to be rolled a long time ago despite the fact that there are still 26 days to maturity for the March future.

Let's go now to the Bund future.

We see that the March future has 5 days to expire, it has an open interest of 766 and a volume of 690.

The next expiration has still a lower open interest and volume, so the five days to expire are telling me: "Attention, in a little while we need to roll over this contract!" When? 

Now it's too early because the greater liquidity is still on the March contract.

How is this layout built?

It's really very simple.

Just click on the + sign at the bottom of the page, enter a name and under the new window menu select watchlist.

First of all, we delete the fields that we don't need.

For example "Last" and instead we insert those of interest for us, like "Days to the last trading day" and the open interest and finally we insert the volume.

Then we can create a header by right clicking > create group header > metals and insert for example the gold ticker.

We select "Futures" with multiple expirations.

We simultaneously select the contracts that interest us.

So we have the volumes, the open interest, and the days to expiration... sorry the days to the last trading day.

These are the data we need to evaluate whether or not it is time to roll-over our future.

We repeat this procedure for all the other underlying that interest us and once the watchlist is populated we close the layout and that's it.