A trader who has a position on in September Treasury Bond Futures (/ZB) either has to exit the position or roll the position before the contract expires. How do we know when to roll and how should we do it? Our Futures expert Pete Mulmat joins the guys to tell you when to roll and how to roll.
Today your system will indicate that September Futures are expiring in 4 days. That’s an obvious sign that you need to roll. The reality is that you have more time but don’t want to take it. The four days is for First Notice Day and is when longs can be notified that delivery is being made against their position. It may not be likely, but why stay in the position when there is no benefit in taking a chance? The other indication to look for is a large increase in volume on the back month. There is already good activity in the December /ZB. The Futures Options expire today.
Pete explained how the different Bond months closely track each other. The spread trades as a market and can be entered as one order. Tony quickly showed, step by step, how to set up the order on the system. Pete provided some tables to show what you are doing when buying or selling the spread and how the spread is quoted. He reminded us that the spread trades in a quarter of a tick. That means $7.8125 per spread tick or 1/128 of a point for 1000 bonds. There is no reason to try and work the spread. Each side has size and the markets are tight. The spread does not move much at all. When you complete your trade you will close out your long or short position and set up a new one in the same account.
For more information on Rolling Bonds see:
Closing The Gap - Futures Edition from January 30, 2016: "Rolling March-June /ZB Futures"
Closing The Gap - Futures Edition from February 19, 2016: "Rolling Bond Futures"
Closing The Gap - Futures Edition from May 20, 2016: "The Bond Roll"
Watch this segment of Closing the Gap - Futures Edition with Tom Sosnoff, Tony Battista and our Futures expert, Pete Mulmat for the hows and why of rolling your Bond position.
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