Fat Tails 

The rollover question is simple for some of the futures contracts (including all the financials and precious metals) and it is difficult for physically traded commodities such as crude oil and the agriculturals. I doubt that you can code an algorithm, which does it all. Let us take CL. First you need to look up the last trade date and the first notice date. The rollover date needs to be prior to both these dates. Then the question is whether you use that rollover date -> to roll your position (you will have a look at liquidity) -> or to build a backadjusted contract (the offset depends on the rollover date) For rolling my position, I will use some discretion, as for example that Cushing delivery is totally insane, so I would rather roll early than late, to avoid potential trouble during the last days of trading of that CL contract. I would be less concerned to roll a position late in Brent Crude traded at IPE. I have never succeeded to find an algorithm for CL.

Excellent points.

People will roll positions when there is good basis potential. This will give a portfolio manager extra alpha. Whether the contract is trading at contango or backwardation will be a significant consideration.

Some months that will be earlier than the 'average' date, some times later.

In other words, it's pretty much a discretionary decision.

Ive seen brokerage reports proving there will be an extra 20 bps available rolling earlier/later than normal. Thats significant in terms of annual bonus to a manager.

Code that. Lol.

TheDude 

Ive seen brokerage reports proving there will be an extra 20 bps available rolling earlier/later than normal. Thats significant in terms of annual bonus to a manager. Code that. Lol.

I doubt that this is true for financials. But I believe that the spread between the two front months can be distorted by

-> the structure of the inventory (open interest)
-> the physical market close to delivery

Let us take crude oil which is delivered at Cushing as an example. Usually long only commodity funds need to roll their positions over. This means that it can be a profitable strategy going short prior to rollover and then buy from long funds when rollover date is approaching. Then sell the new front month and wait for the next rollover date.

However, from time to time there is a physical shortage in Cushing, due to pipeline maintenance or other reasons, and professional traders step in and purchase long positions to get delivered. In such a case their can be a magnificent short squeeze, as the shorts are trying to purchase back their positions in order to avoid to get assigned for delivery.

Fat Tails 

I doubt that this is true for financials. But I believe that the spread between the two front months can be distorted by -> the structure of the inventory (open interest) -> the physical market close to delivery

Yep it was actually - it was an idnex future, i think ftse100 or some lesser traded contract.