A roll yield is the return on an investment in a futures contract that is rolled over to a new contract with a different delivery date.
The roll yield is calculated by subtracting the price of the new contract from the price of the old contract and then dividing by the old contract's price.
For example, suppose you are holding a December corn futures contract and you roll it over to a March corn futures contract.
The December corn contract is trading at $4.00 per bushel and the March corn contract is trading at $4.10 per bushel.
The roll yield would be calculated as follows: ($4.10 - $4.00) / $4.00 = 0.025 or 2.5%.
What is VIX roll yield?
The VIX roll yield is the return that an investor receives from rolling their position in a VIX futures contract. This yield is calculated by taking the difference between the VIX futures settlement price and the VIX spot price, and then adding in the cost of carry for the VIX futures contract. The VIX roll yield is a key component of many VIX trading strategies, as it can provide a way to generate returns even when the VIX itself is not moving.
What does high rollover mean?
Rollover is the process of closing out an open position at the end of the trading day and reopening that same position the next trading day.
For example, if a trader is long one contract of corn futures, they will need to rollover their position before the end of the trading day in order to maintain their position.
The rollover process involves two trade transactions:
1. The first transaction is to close out the open position at the current day's settlement price.
2. The second transaction is to re-open the same position at the next day's opening price.
The net effect of these two transactions is that the position is effectively "rolled over" from one day to the next, without having to take delivery of the underlying commodity.
Rollover is a common practice in the futures markets, as most futures contracts are traded on a daily basis and do not have a fixed maturity date.
Rollover can also be used to adjust the position size of a trade, as well as to adjust the price at which the trade is entered.
For example, a trader who is long one contract of corn futures at $4.00 per bushel may elect to rollover their position to the next day in order to avoid taking delivery of the underlying commodity.
In this case, the trader would close out their position at the current day's settlement price and then re-open the same position at the next day's opening price.
The net effect of this rollover would be to avoid taking delivery of the corn, as well as to adjust the price at which the trade is entered.
Rollover can also be used to adjust the position size of a trade.
For example, a trader who is long one contract of corn futures at $4.00 per bushel may elect to rollover their position to the next day
How long can I hold a futures contract? A typical futures contract has a three-month expiration date. However, there are some contracts with longer expiration dates, such as the December contract, which expires in December of the year it is purchased.
The expiration date is the date when the contract expires and is no longer valid. At that time, the buyer must either take delivery of the commodity or settle the contract with the seller.
What is a rolling position? A rolling position is a futures trade that is held for more than one delivery date. The trade is "rolled over" to the next delivery date when the current delivery date expires.
Rolling a position is usually done to avoid taking physical delivery of the commodity, since taking delivery usually incurs additional costs (such as storage fees).
Sometimes, rolling a position can also be done to take advantage of changes in the price relationship between different delivery dates. For example, if the price of commodity for delivery in December is higher than the price for delivery in January, a trader might "roll" their position from December to January to take advantage of the price difference. What happens if I don't square off futures on expiry? If you don't square off your futures contract on expiry, then your broker will do it for you at the last traded price. This is called 'auto-squaring off'.