Rolling strategies refer to a class of investment or trading approaches that involve the periodic adjustment or replacement of existing positions with new ones. These strategies are typically employed to maintain consistent exposure to a specific market factor, manage duration risk, or capture premium, and are common in derivatives markets, including crypto institutional options trading, where contracts have finite expiration dates.
Mechanism
The operational process for a rolling strategy involves simultaneously closing out an expiring or near-term position and opening a new position with a later expiration date or a different strike price, while generally preserving the same underlying asset and market direction. For options, this might entail selling an expiring call option and concurrently purchasing a new call option with a longer maturity, incurring transaction costs and potentially realizing a profit or loss on the closed contract.
Methodology
Employing rolling strategies provides a methodology for adapting investment exposure to evolving market conditions and effectively managing the time decay inherent in options contracts. A strategic application involves seeking to capitalize on contango or backwardation in futures markets, or systematically managing risk in options portfolios. This approach requires careful consideration of market liquidity, bid-ask spreads, and transaction costs across various contract maturities to optimize overall portfolio performance.
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