Just have a quick question regarding holding a position in a futures trade fro weeks on end ( swing trading ) , an what to do when that months contract that you are trading is about to end, and the next contract is about to begin trading ( the one with the most Volume and O.I. )
Is this something that my brokerage firm will let me know ahead of time via e-mail ,
and if so ..... can they automatically convert my trade into the new contract , by me giving them permission to do so ?
And how would a swing trade work , if I've been in a trade on CL for the contract month of June , and I've been holding in this position for 2 weeks, but the June contract is about to end and the August contract is going to be the next upcoming contract to trade ..... could I still stay in this position and just ' roll into " the August contract, while still maintaining in my position trade that I've been in since June ?
Would I have to close out of that June position, and start a whole new trade come the August contract ?
There are already numerous threads, where this question has been discussed. Nevertheless I will try to give a short answer.
(1) It is your responsibility, not the responsibility of your broker to make sure that you close out your position in time in order to make sure that you will not be assigned for physical delivery (long position) or not be asked to make a physical delivery (short position). However, most of the brokers will automatically close your position in time to avoid any case of physical delivery.
(2) In case that you hold a long position, you need to roll that position prior to first notice date and prior to contract expiry - whatever comes first. Let us assume that you hold a long position in Silver 07-15 futures. The last trade date (LTD) of the Silver 07-15 contract is July 29. The first notice date (FND) is on June 30. You may not hold your Silver 07-15 position until the contract expires on July 29, but you need to roll that position to the Silver 09-15 contract 1 day prior to first notice day, that is on Monday, June 29. Otherwise you would run the risk of getting a notice for physical delivery. The risk is higher for older positions, as positions that were set up first will be assigned first for physical delivery.
(3) In case that you hold a short position, you will not be assigned for delivery prior to the last trade trade (LTD). But if you hold your short position until the final days, you may suffer from a short squeeze, when physical stocks are not sufficient to meet the delivery obligations of all traders holding shorts. Therefore it is not recommended to hold a short position past first notice date, if you are unwilling to deliver physically.
(4) If you wish to roll a contract, you can simply close out your position in the old contract and enter a new position for the new contract month. This method is straightforward, but it has two inconvenients
- you are exposed to market risk, if the spread between the new and old contract changes while you roll your position
- you are paying commissions on both legs of the contract rollover
(5) An easier solution is therefore to purchase or sell the calendar spread between the new or old front month contract.
Example: You hold a long position of CL 07-15 crude oil on rollover date (June 17). Rather than selling the July contract and buying the August contract, you would go long the calendar spread (July/August) at NYMEX. The calendar spread is the price diffential between the August and the July contract. After buying the calendar spread you will end up with the rolled position:
1 long contract CL 07-15 + 1 long spread (CL 07-15/ CL 08-15) = 1 long contract CL 08-15
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