Rolling a contract is an investment concept meaning trading out of a contract and then buying the contract with next longest
maturity, so as to maintain a position with constant maturity.
Motivation
One may roll a contract because one has a special preference for a specific maturity—for example, the five-year
CDS
CDS, CDs, Cds, etc. may refer to:
Finance
* Canadian Depository for Securities, Canadian post-trade financial services company
* Certificate of deposit (CDs)
* Counterfeit Deterrence System, developed by the Central Bank Counterfeit Deterrence ...
rate of a given name—or because a given on-the-run security is more liquid than off-the-run securities.
Examples
While holding
US Treasuries
United States Treasury securities, also called Treasuries or Treasurys, are government debt instruments issued by the United States Department of the Treasury to finance government spending as a supplement to taxation. Since 2012, the U.S. ...
, one may wish to hold only the most recently issued security of a given maturity, the so-called
on-the-run security. Thus, if one has purchased the on-the-run 30-year treasury and a new 30-year auction occurs, one may sell the old treasury, which is now off-the-run, and purchase the new on-the-run treasury.
There is generally very high trading activity on these dates, as contracts whose maturity falls on them are rolled.
Index roll congestion
When an
index
Index (: indexes or indices) may refer to:
Arts, entertainment, and media Fictional entities
* Index (''A Certain Magical Index''), a character in the light novel series ''A Certain Magical Index''
* The Index, an item on the Halo Array in the ...
has a published policy for rolling its contracts, such as on a given day or over a given period, a trading strategy is to roll in advance of the index, in anticipation of its trading volume. This is referred to as index roll congestion.
See also
*
Jelly roll (options)
A jelly roll, or simply a roll, is an options trading strategy that captures the cost of carry of the underlying asset while remaining otherwise neutral. It is often used to take a position on dividends or interest rates, or to profit from mispr ...
*
Rollover (foreign exchange) In foreign exchange trading (FX), a rollover is the action taking place at end of day, where all open positions with value date equals SPOT, will be rolled over to the next business day. This happens since in FX trading the trader doesn't want to ...
References
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Investment
Settlement (finance)