Trading the Rollover

jones247 · Jan 20, 2009

Has anyone heard of a strategy that encompases trading the rollover. I understand that there are a few pit traders who only focus on trading the rollover, and make a fortune at it.

The following is a quote from a website on futures rollover:
"There are (allegedly) pit traders that just specialize in the days around rollover. They only trade these days (I have no idea what they do for the other 10 weeks in between rollovers but this is what I've been told) and they trade the widening spread in the expiring contracts. For whatever reason there are longer term traders that don't close out and roll their contracts at the optimum time. These rollover "specialists" will make a market (at a wider than normal spread) in the expiring contract and (apparently) make a very good living out of the rollover process."

How is this done???? Is it merely a play on volatility? Or is it based on a contango or backwardation dynamic as the front month is approaching expiration?

thanks,

Walt

jeb9999 · Jan 21, 2009

That is old information. The key is that it was pit traders and it was done in the 1980's and 1990's. If you weren't in the S&P or NYFE pit you couldn't work the spread.

jones247 · Jan 21, 2009

So... does this mean that there is no way to take advantage of the rollover days on futures contracts (i.e. statistical arbitrage opportunity)?

Walt

Pa(b)st Prime · Jan 21, 2009

Quote from jeb9999:

That is old information. The key is that it was pit traders and it was done in the 1980's and 1990's. If you weren't in the S&P or NYFE pit you couldn't work the spread.

There's still decent rollover volume in the pit. In fact the floor volume one sees in many contracts is mostly spreads.

Pa(b)st Prime · Jan 21, 2009

Quote from jones247:

So... does this mean that there is no way to take advantage of the rollover days on futures contracts (i.e. statistical arbitrage opportunity)?

Walt

For all practical purposes there's no spread scalp play on the screen. Even traders using auto-scalp bots get picked off.

There are some opportunities to scalp spreads overnight particularly in crude and grains. Because spread scalping is VERY commission intensive there's little chance of someone paying non-member rates and being net profitable.

jones247 · Jan 21, 2009

Quote from Pa(b)st Prime:

There's still decent rollover volume in the pit. In fact the floor volume one sees in many contracts is mostly spreads.

However, as an electronic trader, are there any opportunities? For example, if the market is in contango, then the chances are that on the day of expiration, the front month contract will increase during the day. This then can be hedged against a short position in the next month.

I'm just trying to stimulate possible avenues for obtaining an edge in this highly unpredictable market.

thanks,

Walt