Systematic Rolling refers to a predefined, rule-based strategy for managing derivative positions, typically futures or options, by automatically closing contracts nearing expiration and simultaneously opening new positions in contracts with later expiry dates. This process ensures continuous, uninterrupted exposure to the underlying crypto asset or index within an automated trading framework.
Mechanism
The operational mechanism of systematic rolling relies on algorithmic triggers, which activate based on parameters such as the contract’s time to expiry, the differential between contract prices (known as roll yield), or specific calendar dates. Upon activation, the system executes a sequence: liquidating the existing position and concurrently entering a new position in a more distant contract, adhering to predefined rules for execution price and quantity to minimize slippage.
Methodology
This strategic approach eliminates discretionary human intervention, promoting consistent market exposure and potentially reducing transaction costs compared to manual execution. It is particularly relevant for managing futures-based portfolios or options strategies in crypto markets where maintaining a constant position is desired, and the management of futures curve structures like contango or backwardation is critical for optimizing long-term returns and managing cost of carry.
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