Roll Shock refers to an abrupt and significant price movement or liquidity disruption in a crypto futures or options market that occurs around the time of contract expiration and the subsequent “rolling” of positions to the next contract month. This event can cause unexpected market friction.
Mechanism
This shock is triggered by concentrated trading activity as participants close expiring positions and open new ones in later-dated contracts. High demand or supply during this short window can cause temporary imbalances, leading to widened spreads, increased slippage, and unexpected price shifts as positions transition.
Methodology
Market participants manage roll shock through pre-planned execution strategies, often involving algorithms that distribute roll trades over time or seek specific liquidity pools to minimize market impact. The strategic principle is to reduce exposure to these predictable, yet often volatile, transition periods by optimizing timing and execution methods.
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