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Micro E-Mini Futures Course: Part 3

Managing Micro E-Mini Futures Expiration

Every futures contract has an expiration date.

CME Group’s Micro E-mini futures contracts expire on a quarterly basis, settling to the official opening level of their respective index on the third Friday of March, June, September and December.

Prior to expiration, a futures trader has three options:

Offset the position to fully close out the trade
Let the contract expire and enter the delivery process
Roll the contract from the current month to a future expiration date
How a trader approaches expiration will depend on their individual trading strategy. Let’s review the various ways you can approach an expiring Micro E-mini futures contract.

Offset a Futures Position

To offset a position, a trader must make an opposite and equal transaction of their current position. One benefit of this approach is to monitor the current market level and assess the attractiveness of offsetting their position at the prevailing levels.

For example, a trader who is short two June Micro E-mini Russell 2000 futures contracts will need to buy two June Micro E-mini Russell 2000 futures contracts to offset their position.

The difference in price between their initial positions and offset positions will represent the profit or loss on the trade.

Expiration and Delivery

Some traders might allow their positions to expire.

Micro E-mini futures, settle in cash against the official open price of the respective index. However, in this approach the trader has no ability to time their trade based on price and will be a price taker of the official open price of the index.

For example, if a trader bought three June Micro E-mini Nasdaq 100 futures contracts at $7328 and upon expiration the MNQ futures contract settled at the Nasdaq-100 official open index price of $7348, the trader’s account would be credited $120.

Roll the Futures Contract

Finally, some market participants may wish to extend their positions in a contract and maintain continuous exposure to the index.

The strategy that allows them to extend a futures contract from one expiration to the next, is referred to as rolling the futures contract or rolling forward.

This can be transacted using a calendar spread. A calendar spread allows a trader to trade out one expiring contract and into a deferred contract.

By executing a calendar spread, a trader’s Micro E-mini futures position can be extended into the future by three or more months depending on which deferred contract they roll into.

Let’s assume, a trader is long five, June Micro E-mini S&P 500 Index futures contracts. The trader wants to extend his long Micro E-mini S&P 500 Index exposure beyond the June expiration.

He enters a calendar spread order to roll his contracts forward. The trader would sell the June futures and buy September futures resulting in a net zero position in June, and a long position of five September Micro E-mini S&P 500 Index futures contracts.

The trader has essentially moved his position from June to September.

While the trader chose to roll into September futures, as this is the most common approach for Equity Index futures, he could also have rolled into the December or the March Micro E-mini S&P 500 Index futures contracts – if his investment horizon was longer, but the price of that calendar spread would be different depending on the time frame, implied carry costs and dividend expectations of the index.

Conclusion

We’ve discussed three ways a trader can manage their positions and exposure heading into futures contract’s expiration.

However, you will need to decide what works best for your trading strategy. Understanding how to manage expiration is an important aspect of managing your trading account.

This marks the end of the Micro E-Mini Futures course. If you have any additional questions, feel free to contact us or leave a comment. 

DISCLAIMER: There is a substantial risk of loss in trading commodity futures and options products. Losses in excess of your initial investment may occur. Past performance is not necessarily indicative of future results. Please contact your account representative with concerns or questions.

By |2019-11-19T09:02:34-06:00November 19th, 2019|Courses & Education|0 Comments

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