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Futures Expirations Question
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Futures Expirations Question

  #1 (permalink)
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Futures Expirations Question

I am new to trading futures. I am currently educating myself and will begin sim trading shortly. I am leaning toward trading the ES and 6E, but am also looking into CL, ZN and ZB. My approach will be price action, with an emphasis on trendlines and support/resistance areas.

I wish to make sure I understand correctly the First Notice Day and Last Trading Day. My understanding is that these terms do not apply to index futures (ES) and currency futures (6E) but they do apply to financial futures (ZB, ZN) and energy futures (CL). My research tells me that, where applicable, one should switch to trading the next contract at the latest on the day preceding the First Notice Day. Do I have all this right? Have I overlooked anything else with respect to futures expirations?

Thanks very much for your time.

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  #3 (permalink)
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MV007 View Post
I am new to trading futures. I am currently educating myself and will begin sim trading shortly. I am leaning toward trading the ES and 6E, but am also looking into CL, ZN and ZB. My approach will be price action, with an emphasis on trendlines and support/resistance areas.

I wish to make sure I understand correctly the First Notice Day and Last Trading Day. My understanding is that these terms do not apply to index futures (ES) and currency futures (6E) but they do apply to financial futures (ZB, ZN) and energy futures (CL). My research tells me that, where applicable, one should switch to trading the next contract at the latest on the day preceding the First Notice Day. Do I have all this right? Have I overlooked anything else with respect to futures expirations?

Thanks very much for your time.

@MV007: I mostly agree with you, but not completely.


Last Trading Day

This applies to all futures contracts, including index futures and currency futures. For example the last trading day for the current front month contract ES 03-13 is March 15, 2013. You can look this up in the product calendar of CME

E-mini S&P 500


First Notice Day

Most of the futures contracts may lead to the physical delivery of the good that has been purchased or sold in advance. The possibility of a physical delivery allows to hedge between the forward and the cash markets and thus ensure that the price of the futures contracts will not deviate too much from the underlying market. In case that there is a physical delivery, the holder of a short position needs to supply the good. Let us take the example of crude oil.

An oil company holds a short position in CL 03-13 and wishes to supply the good as per contract specifications. Supply must be made to the storage facility in Cushing, Oklahoma. Then the process is as follows

Between first and last position day: Holder of short position notifies exchange of delivery intent
Between first and last notice day: Exchange notifies holder of long position of delivery intent
Between first and last delivery day: Holder of short position delivers good to holder of long position

As a speculator you neither want to engage into physical delivery nor do you want to be delivered! To avoid this in any case you need

as a holder of a short position -> close your position prior to last trading date
as a holder of a long position -> close your position prior to last trading date
as a holder of a long position -> close your position prior to first notice date

This means that as a general rule you need to roll your position for physical deliverable contracts prior to last trading day and prior to first notice day, whatever comes first.

For our crude oil contract, things are pretty simple. The last trading day for CL 03-13 is February 20. If you hold your position until that date, you will either have to deliver or take physical delivery of oil in Cushing, Oklahoma. The first and last position date is February 21. On that date the holder of a short position has to confirm physical delivery. The first and last notice date is February 22. On that date the holder of a long position will be notified by the exchange for delivery. This means that for Crude Oil you only need to observe the last trading date.

But there are many futures contracts, where the first notice date comes prior to the last trading date. In this case you need to roll prior to first notice day, in particular if you hold a long position.

US interest rate futures -> typically first notice date is around 3 weeks prior to the last trading date
metal futures -> typically first notice date is 4 weeks prior to the last trading date
agricultural futures -> typically first notice date is 2-3 weeks prior to the last trading date

The concept of a first notice day does not apply, if nothing is supplied. This is the case for cash-settled futures.


Cash settled futures

The is no first notice day. If you hold your position into contract expiry (last trading date), then there will be a cash settlement of the difference, similar to the cash settlement that your futures contract undergoes every day and which leads of an adjustment of your maintenance margin.

Let us stay with crude oil. Unlike the NYMEX traded contract CL 03-13, the ICE (International Petroleum Exchange)
traded contract of Brent Crude is a cash settled contract, that has an option to sell EFP (exchange for physical).
In this case there will be a cash settlement, if you hold the contract into expiry.

If you look at the contract specifications, these contracts are cash settled

-> equity futures
-> currency futures (by definition you purchase cash)

There is no first notice day required, as every contract that is hold into expiry will lead to a cash settlement.


Definitions as used by CME


- First Trade Date: The day on which the contract will start trading.
- Last Trade Date: The day on which the contract will cease trading.
- Settlement Date: The day on which the final settlement price for the contract will be determined.
- First Holding Date: The date when CME Clearing will begin accepting position dates, where applicable, for deliverable contracts
- Last Holding Date: The date when CME Clearing will no longer require position dates, where applicable, for deliverable contracts
- First Position Date: The first date on which CME Clearing will accept intents and run assignments for deliverable contracts
- Last Position Date: The last date on which CME Clearing will accept intents and run assignments for deliverable contracts
- First Notice Date: The first date that users will get notified that they have been assigned a delivery.
- Last Notice Date: The last date that users will get notified that they have been assigned a delivery.
- First Delivery Date: The first date that users will complete delivery.
- Last Delivery Date: The last date that users will complete delivery.

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  #4 (permalink)
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Thanks for your answer. That's the information I needed.

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  #5 (permalink)
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Answer
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When I first started trading I was so concerned about the roll over date and it turned out to be very anti-climatic. Knowing all the details is very important, but going through a roll over is no big deal. Reason being I do not hold overnight.

The key I found is to watch the volume. After all, if your following price action, you need volume.

I look at Emini Day Trading Daily Notes and keep an eye on the daily volume - any site that gives you the daily volume will do. Compare the volume of the current contract and the volume of the new contract. There will be a day when the majority shifts to the new. This way you will know when the heard is trading the new contract - it is very noticeable and well within the important dates to keep in mind.

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  #6 (permalink)
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tulanch View Post
When I first started trading I was so concerned about the roll over date and it turned out to be very anti-climatic. Knowing all the details is very important, but going through a roll over is no big deal. Reason being I do not hold overnight.

The key I found is to watch the volume. After all, if your following price action, you need volume.

I look at Emini Day Trading Daily Notes and keep an eye on the daily volume - any site that gives you the daily volume will do. Compare the volume of the current contract and the volume of the new contract. There will be a day when the majority shifts to the new. This way you will know when the heard is trading the new contract - it is very noticeable and well within the important dates to keep in mind.

@tulanch: That is what I do, I watch the volume of the current and the next front month contract and roll my contracts, when the volume shifts. Above I only explained that there is a dead line for rolling.

Indeed all the wisdom can be summarized as follows:

Tip

(1) For many contracts there are no "official" rollover dates.
(2) A contract must be rolled prior to its last trading date.
(3) A contract must be rolled prior to its first notice day.
(4) The best time to roll is when liquidity shifts from the current to the next front month.


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