There are many oil traders here, so let me say that CL does not usually switch until the third Thr. And remember, CL is monthly, not quarterly.
I usually add the next contract to Market Analyzer early in the month, and as we get closer to roll over day on oil, I just check the volume and move to the new one was volume has taken over.
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The following 10 users say Thank You to Big Mike for this post:
Great insight by Mike, if not to keep in mind that he advised a lot money could be lost, trading contract from which volume already switched to next, the same danger to switch to new contract before main volume switched to it.
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Contract expiry on second business day preceding the third Wednesday of the contract month. Rollover 5 business days prior to expiration. Usually this is the Monday directly preceding the rollover day for index futures. If the contract month starts with a Thursday or Friday (not applicable in 2010), this may be the Monday after the rollover day for index futures. I have not checked this so far. Rollover days are fixed by the exchange and volume shifts to the new contract on rollover day.
Exceptions: The Canadian Dollar futures are rolled one day earlier.
These are rolled on first notice day, which is usually the last business day of the month preceding the contract month. The contracts expire about 3 weeks later. Volume shifts to the new contract on first notice day.
Question: If you still hold a long position of the old contract on first notice day, you are running the risk to be assigned to purchase the underlying by the clearing house. Has anybody tried this? Does your broker automatically roll or close your position to avoid this?
Similar as interest rate futures. First notice day is usually during the last business days of the month preceding the contract month. So volume shifts to the new contract on first notice day. Liquid contracts are February, April, June, August, December. So you have to roll every two months.
Question: I have noticed that the October contract is illiquid. NT7 uses this contract for backadjusting contracts, which results in a false offset. Should not take offsets from illiquid contracts. Does anybody know, why October is illiquid?
Eurex Index Futures:
Last trading is the same as for CME index futures. For Eurex index futures rollover day is the last trading date, volume only shifts to the new contract on this date. Eurex index futures therefore roll on Friday 8 days after rollover date for US index futures.
Crude Oil Futures:
There is no specific rule for crude oil futures. First notice is after contract expiry, so it does not have any impact. Usually volume shifts between 2 and 4 business days prior to expiry.
The real problem here is that CL futures are physically settled with delivery in Cushing, Oklahoma. This is a pipeline storage in the middle of nowhere. So if you are short CL in the old contract on expiry, you may have to deliver but do not have enough helicopters to drop the crude in Cushing. The problem is that local prices in Cushing may not at all reflect world market prices, and the old contract often shows an erratic behaviour. This may create an extremely high volatiliy in the old contract, as either shorts are squeezed or longs are pillaged. The CL contract is an anachronism and NYMEX should long have allowed delivery into a port to avoid these price fluctuations.
I remember the headlines in all business newspapers from September 23, 2008. The headlines - even in the Financial Times - read that oil prices had risen by 16% on a single day. Of course spot prices had not risen that much , the November contract had shown a 6% increase, and the reported increase of 16% was just the mother of all short squeezes which occured on the front month. Probably it was just the pipeline to Cushing, which was broken, and shorts that did not know the spot market were trapped. Conclusion: No specific rules for CL, but do not trade the old contract in the week prior to expiry, if you do not understand the spot market.
Question: Does anybody remember that he had a short position for CL 10-08 on September 22, 2008 when crude made it from US-$ 104 (prior close) to an intraday high of US-$ 130?
Last edited by Fat Tails; March 14th, 2010 at 06:58 AM.
Reason: CME link added
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I deducted front month prices from second month prices. Usually the difference will be positive. showing a contango market, but there are some exceptions, when the spot market in Cushing is short of product.
If you look at the chart you will find that volatiliy increases in the middle of the month, when contracts are rolled. Large funds such as United States Oil Funds (NYSE: USO) will possibly not roll their positions during the last days before expiry to avoid rollover losses. However, front month volatility is lower now than one year ago.
This document shows what NADEX uses for their derivatives, but not all of the dates are in line with futures rollover dates. For example rollover dates for FDAX (DAX futures) are listed as 03/12/2010. Correct rollover would be one week later on 03/19/2010. Please cross-check any information that you get. If the listed dates do not match the shift in volume from the old to the new contract they are likely false.
Just wanted to add this, so nobody puts in any dates without prior verification.
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