Contract Roll Over is a special and different kind of trading day, and futures day traders should be aware that the market will act differently.

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OPEX brings many new risks to speculative traders that most other trading days do not.
Simply put it is 1 of 4 days of the year (actually 3 days of 12 as the effects of roll over tend to last for 3 days) when all the larger institutional traders Must come to the market and adjust their positions.
On every other trading day the institutional traders can chose to trade or not trade, however on roll over / OPEX this is not the case. As contracts will expire and cease to exist, they therefore must adjust, or "Roll" their contracts forward into new contract months.

In addition, knowing that the institutions will be present and active, there exists a group of traders who specifically take advantage of this dynamic. They are called Spreaders.
A spreader will take a position in both the back month and front month, (the outgoing and incoming contract) in order to scalp or play the spread between the two.
Spread trading requires a very specific skill set and is not for the average day trader or fain of heart.

The 3 days leading ip to OPEX day (3rd Friday), will act differently than most other trading days, and the reasons why have just been explained above. The influence of large institutional trading coupled with spread traders makes navigating the landscape more challenging than other trading days.

Keep in mind that for futures traders the effect of OPEX witll hit the market on the Tuesday  or Wednesday prior to the Friday Expiration. Even though the actual contracts will expire on the 3rd Friday of the month, the institutions must plan ahead for this, and that means the 2 sided effect of OPEX will be seen a few days earlier.

For more information on trading futures contract rollover see this post

The emini S&P 500 held a tight 7 point consolidation range throughout the entire day Friday.  Continuing to hold these levels and reject the previous attempt to take out lower value shows the short term acceptance of the continued consolidation range traded of the last month. Now with options expiration behind us, we commented quite a few times in our trading chat room about the lack of opex choppy price action usually seen on opitions expiration week. 

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 Posted: July 20, 2009

For tomorrow Wednesday June 10, 944.50 and 939.00, almost identical levels that we have seen for the last few days. further evidence of this consolidation. A brief attempt by locals to test the recent level of 935 just below is also in the cards, volume on that test will be the key to whether we continue to retrace all the way to 925

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Yesterday was options expiration Wednesday and true to the typical day during opex, the emini S&P remained range bound throughout the day session around the market profile TPO level of 789.  Choppy price action was observed throughout the day and is another typical characteristic of the S&P 500 market during OPEX week.  Today we look to see this choppy market trade subside toward the afternoon session.

Posted: Feb 19, 2009 @ 12:04 am