S&P futures contract rollover

A contract month is the month in which a futures contract expires. All of the e-mini stock index futures contracts trade on the March quarterly expiration cycle (March, June, September and December). Each month is represented by a single letter:
  • H = March
  • M = June
  • U = September
  • Z = December
Each contract is known by its ticker symbol, the contract month and the year in which the contract is traded. The complete name for the March 2012 TF contract, for example, would be "TFH12" (see Figure 4).

Figure 4 - Each futures contract is known by its ticker symbol, contract month and year in which the contract is traded.

E-mini contracts are similar to other futures contracts in that they have a defined length and specified expiration. The e-mini stock index futures expires at the same time and to the same price as their larger counterpart contracts (for example, the e-mini S&P 500 contract expires at the same time as the standard, full-sized S&P 500 contract). The expiration date (or final trading day) is the last day that a futures contract is valid. Since futures contracts have delivery months (or contract months, such as H, M, U and Z), the expiration is the time and the day that the particular contract stops trading. The final settlement price for the contract is also determined. Expiration for the e-minis stock index futures contracts (including ES, NQ, YM and TF) occurs at 9:30 am EST on the third Friday of the delivery months, such as the third Friday in March for a March contract, or the third Friday in December for a December contract.

When a contract expires, it does not expire worthless (like an options contract would). Instead, an open position rolls over to the new contract.

Rollover
Contract Rollover occurs on the Thursday a week before the expiration Friday - for the e-minis, this is the second Thursday of March, June, September and December (if the Rollover month starts on a Friday, the Rollover is the first Thursday of the month). The next contract becomes the "lead contract" or the "front month". Even though the previous contract continues to trade until expiration, the majority of trading moves to the next contract. For example, if the TFU12 contract expires on September 21, the rollover date would be the previous Thursday, or September 13, in this case. The majority of trading would switch to the December contract (TFZ12) as of market open (9:30 am EST) on the rollover date.

Figure 5 illustrates the increase in volume that switches to the next contract as of the Rollover date. In the example, the June and September ES contracts are shown. The Rollover (June 7) date is indicated by the yellow arrows, along with the June contract's expiration. Notice the increase in volume for the September contract that coincides with the Rollover date. Trading for the June contract ceases as of the expiration.

Figure 5 - These daily charts show the June and September 2012 ES contracts. The Rollover (June 7) dates are indicated by the yellow arrows, along with the June contract\'s expiration. Notice the increase in volume for the September contract that coincides with the Rollover date. Chart created with TradeStation.

Trading the Contract Rollover
Many active traders will trade the "old" contract on Rollover day, and then switch to the "new" contract on the next day, or make the switch on the actual Rollover day. Figure 5 shows that after Rollover, the volume of the current contract (June) wanes, while the volume of the upcoming contract (September) increases. In general, traders should move into the new contract as volume moves from one to the other. Some traders avoid Rollover day altogether because it is considered by many to be choppy and challenging to trade. It is important to do your own homework and research to determine if your trading strategy is affected by Rollover trading.

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Popular Q&A

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What is specific about futures contracts?

Four things:
the commodity being sold
the amount of that commodity you'll get
the price per unit
and the settlement date
If you buy a CME copper futures contract...
the commodity is Grade 1 electrolytic copper cathodes, full plate or cut, conforming to ASTM specifications for this metal, and physically delivered
the amount is 25,000 pounds
the price is in cents per pound
and the settlement date depends on the contract you bought.

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