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.

Join us for a trial in our live trading chat room as our in house veteran floor trader, (18 years trading on the floor of the CBOT) walks you through the futures contract roll over and guides you and he dissects the markets. Learn what the institutions are doing, how the locals are trading order flow and how the spreaders arbitrage by trading both the front and back months

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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 opened yesterday with a gap up yesterday and filled the imbalance gap quickly after a choppy open.  Once the gap was filled the market drove for higher highs trying to test higher value and fill the longer term gap from Friday. Overall, the trade was typical for an August summer trade with the choppiness of options expiration coming into play as well.

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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

After an interesting trade during options expiration week and quadruple witching, the trade should return back to normal today and prepare for the FOMC announcement later this week.   The emini S&P 500 opened with a gap up on Friday and consolidated the overnight moves throughout the morning trade session and ground its way down to fill the gap in the lunchtime trade.  The afternoon trade was contained within a 9 point range further exhibiting range bound nature of options expiration week.

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 Posted: June 22, 2009

On Wednesday of options expiration, the emini S&P 500 exhibited the typical range bound nature commonly seen on options expiration.   The market gravitated to 907′s throughout the day with a test of higher value and no institutional participation at those levels.  Also typical of options expiration, the market closed nearly unchanged for the day.

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 Posted: June 18, 2009

After a few days of large ranges, the S&P 500 opened up with a 12 point gap down, caught its breath and consolidated the large moves over the last few trading days.  The 916.50 level was critical to the upside and the level held throughout the day.  We will closely monitor these critical levels as options expiration starts to get underway.

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 Posted: May 12, 2009

Futures Market Update

The end of options expiration came with a return to normal trade conditions.  The market profile level of 858.75 was tested, held, and the market rallied for the remainder of the day.   On a longer term basis, the test of 867 to the upside shows quite a bit of room above for possible upside movement.

Posted: April, 20 2009 @ 9:10 am

Futures Market Update

The S&P 500 gave up some of its gains on Friday after having a fairly choppy Friday hanging around the market profile lower value area of 779.50.  During the lunch time trade, the market broke to the downside and ground its way down to Market Profile lows of 764.00.  Today we look for the reaction to the news of the government buying up toxic assets to get them off bank balance sheets. With options expiration and Quad Witching behind us, the price action should be much smoother than the later part of last week. 

Posted: Mar, 23 2009 @ 8:45 am

Futures Market Update

Yhe S&P 500 market gave up some of its ground gained resulting from the FOMC announcement yesterday.  What was more interesting was the extreme indecisiveness and choppy price action in the market.  This type of market behavior is common for options expiration week Tuesdays and Wednesdays.  By Thursday of options expiration, the market usually starts to behave normally as the majority of traders have rebalanced their options and futures options in new contracts.  It almost appeared that the OPEX rebalancing was pushed out a day late due to the FOMC rate decision announcement.  Today is Quadruple Witching which is the day that contracts for stock index futures, stock index options, stock options and single stock futures all expire. 

Posted: Mar, 20 2009 @ 8:45 am