Trade Aptitude

Yesterday’s results: Neither trade idea triggered. 

Today’s Best S&P Futures Turning Points: No price levels today due to contract rollover. 

The World Index: (+100/-100) drops from +21 to zero with sentiment mixed and volatility very low. 

Catalysts: Empire State MFG Index @ 8:30. 

Quick Tip: Futures Rollover

Futures contracts are buy/sell agreements between two parties. Every contract has a delivery date at which point the transaction ends and goods/money are exchanged. 

Many futures traders have no intention of fulfilling their contractual obligations. They’re either speculating on price direction or hedging against price changes. For these traders exiting the current contract before the delivery date and entering the next contract further out on the calendar is called rollover. 

For stock index futures the rollover is quarterly near the middle of March, June, September and December. The symbols will change to H, M, U, Z respectively. Starting today we’ll be trading the December (Z) contracts. 

The price difference can be an issue for some trading strategies. For example, the S&P futures September contract closed on Friday at 5629.75. The December contract opening Sunday night at 5684.00. That’s a 54-point difference that will affect many technical indicators and strategies that depend on past price levels. 

Why the big gap up? There are several factors that determine the price but the most impactful is the current interest rate. There is a cost of financing or carrying the underlying asset until the new contract expiration date included in the pricing calculation. With interest rates high, that cost affects the next contract price. A few years ago with interest rates near zero the rollover price difference wasn’t as dramatic. 

If you’re using technical indicators that have a lookback period, like ATR, RSI, etc., make sure there are enough candles/bars on your chart for the new contract. You don’t want the indicator to be influenced by the gap in price. 

If you’re using price levels the transition gets a little trickier. The price that was supply, demand, or high volume may not be as effective going forward. Documenting your trade results during prior rollover periods will give you some answers.

Our trading teams focus on day trading futures and swing trading options. Maybe you'll fit right in. You can try either or both risk-free. 

Trade Fearlessly,

Mike Siewruk

P.S.  Feel free to pass this along to your trading buddies. Share in the wealth!