Continuous Futures Contracts

Posted by Profitspi Admin at 6/3/2015 12:00 AM

We now provide data for a wide selection of Futures. Futures contracts typical trade for relatively short time-periods but by chaining together the individual contracts we can create a long-term price history for backtesting, charting and any other purpose.

For example, it is possible to trade WTI futures for many different contract months as follows:

WTI May

WTI June

WTI July

etc

In this case May is the prompt or #1 contract for WTI, June is #2 and so on.

But once May has expired June becomes #1, July is #2 and so on.

By applying a combination of Roll Date Rules and Price Adjustment Rules we can use these short term histories to create a series of long term price histories such as:

WTI Futures #1 Roll Last Trading Day Unadjusted

WTI Futures #1 Roll Open Interest Backwards Panama Adjusted

and so on for 12 other combinations as detailed further below.

Roll Date Rules

On the last trading day of the expiring contract: this method is called the last-trading-day or end-to-end roll method. This method allows you to use the front contract for as long as possible; however the danger is that activity may have switched to the back contract prior to your roll. A trading strategy based upon this rule runs the risk of unwanted delivery and/or close-out of your positions, if you do not roll in time (the margin for error is very limited).

On the first day of the contract delivery month or on the contract end date, whichever is sooner: this is called the first-of-month roll method, and is used by most major data terminals as their default roll method. It has the advantage that it is uniform across all contracts, and completely predictable. However, this method has very little connection with the underlying mechanics of the contract; it is connected neither to the contract's trading activity, nor to its specific delivery rules. We recommend using this method only for purely deterministic trading strategies which do not rely on behavioral patterns for their returns.

On the first day that the back contract has a higher open interest than the front contract: this is called the open-interest-switch or liquidity-based roll method, and is used by most technical traders, especially in financial futures. It is also used by macro traders who are primarily concerned with larger longer-term trends, and are hence agnostic to minor differences in valuation within a given commodity complex. This roll rule, by definition, offers the highest liquidity to traders. However, note that it is completely inappropriate for interest rates futures, and should be used with care for energy and agriculture futures.

Price Adjustment Rules

No price adjustment: the simplest choice. The prices you see are always actual transaction prices; however, there are discontinuous jumps in the long-term futures price history.

Forwards panama canal method: aka first-true method. Shift successive contracts up or down by a constant amount so as to eliminate jumps, working forwards from the oldest contract in your history. The price of the oldest contract will therefore be "true"; all others will be adjusted.

Backwards panama canal method: aka last-true method. Shift successive contracts up or down by a constant amount so as to eliminate jumps, working backwards from the current contract. The price of the current continuous contract will be "true" and match market prices; however, you will need to recalculate your entire history on every roll date, which may be impractical.

Backwards ratio method: instead of shifting contracts up or down, in this method we multiply contracts by a constant factor so as to eliminate jumps, working backwards from the current contract. As with the backwards panama canal method, this method necessitates full historical recalculation on every roll date.

Calendar-weighted method: transition smoothly from one contract to the next, by using blended or weighted-average combined prices during a pre-determined transition window right around the roll date. This method is an elegant compromise between first-true and last-true methods: like first-true, it requires no historical recalculation, and like last-true, it delivers continuous prices that exactly match current market prices. However, this method cannot be used in conjunction with non-predictable roll dates such as open-interest-switch.

Roll Date / Price Adjustment Combinations

With 3 roll rules and 5 price rules, there are 15 possible price / roll combinations;- minus 1, because calendar-weighted prices are incompatible with open-interest-switch rolling. So there are a total of 14 roll / price combinations available.

On this site futures symbol ids are appended with a suffix to denote the price/roll combination. For example, CL1-EN is used for NYMEX WTI futures contract, known by the identifier CL, for the prompt month, rolling on the last trading day, with no price adjustment.

All combinations are shown below. You can follow the link to your preferred combination and get a list of all contracts which you can then add to a watch list for easy use in backtesting, charting, etc.

 

Last Trading Day First Day of Month Open Interest Switch
Unadjusted Prices

-EN

Roll Last Trading Day Unadjusted Prices

-FN

Roll First of Month Unadjusted Prices

-ON

Roll on Open Interest Unadjusted Prices

Forwards Panama

-EF

Roll Last Trading Day Forwards Panama Adjusted

-FF

Roll First of Month Forwards Panama Adjusted

-OF

Roll on Open Interest Forwards Panama Adjusted

Backwards Panama

-EB

Roll Last Trading Day Backwards Panama Adjusted

-FB

Roll First of Month Backwards Panama Adjusted

-OB

Roll on Open Interest Backwards Panama Adjusted

Backwards Ratio

-ER

Roll Last Trading Day Backwards Ratio Adjusted

-FR

Roll First of Month Backwards Ratio Adjusted

-OR

Roll on Open Interest Backwards Ratio Adjusted

Calendar-Weighted

-EW

Roll Last Trading Day Calendar-Weighted Adjusted

-FW

Roll First of Month Calendar-Weighted Adjusted

N/A