Rolling (finance)
Encyclopedia
Rolling a contract is an investment concept meaning trading out of a standard contract and then buying the contract with next longest maturity
, so as to maintain a position with constant maturity.
rate of a given name—or because a given on-the-run security is more liquid than off-the-run securities.
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.
For contracts whose maturity falls on the quarterly IMM dates
, there is generally very high trading activity on these dates as contracts are rolled.
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Maturity (finance)
In finance, maturity or maturity date refers to the final payment date of a loan or other financial instrument, at which point the principal is due to be paid....
, 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 CDSCredit default swap
A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...
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, one may wish to hold only the most recently issued security of a given maturity, the so-called on-the-runOn the run (finance)
In finance, an on the run security or contract is the most recently issued, and hence most liquid, of a periodically issued security. On the run securities are generally more liquid and trade at a premium to other securities...
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.
For contracts whose maturity falls on the quarterly IMM dates
IMM dates
The IMM dates are the four quarterly dates of each year which most futures contracts and option contracts use as their scheduled maturity date or termination date...
, there is generally very high trading activity on these dates as contracts are rolled.
Index roll congestion
When an index 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 or, pejoratively, "date rapeDate rape
"Date rape", often referred to as acquaintance rape, is an assault or attempted assault usually committed by a new acquaintance involving sexual intercourse without mutual consent....
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