I am new to futures trading . I have a question about the months ... what is the difference between the Sept and the Dec contracts . When you buy the Sept , what happens at expiration ? Do you need to sell or is it immediately switched over to the Dec . If you have a bet on the direction 4 months from now , is it better to buy the Sept or the Dec ? What if you want to buy an option as insurance ?
Yikes... if you are asking these questions, you shouldn't be trading futures. Get out now. Just to answer some of your questions: re: is it better to buy the Sept or the Dec? Depends on the product, price, etc. re: .. buy an option as insurance? You can trade the futures outright with an option leg. I believe this is provided - at least - by CME.
I am not in futures right now so there is nothing to get out of . I am asking questions , that is all . So , for the S&P 500 , if I have a 3-4 month outlook on the market , is it better to buy the Sept and switch to Dec later ? Is the switch over done automatically or does the trader have to watch it and do it manually ? How are the options handled in this case ?
There are more liquidity on the front month. Less so in the back months. Plus, you have the time premium in the back months. Rollover can happen automatically - done by your broker, or you gotta do it youself. Ask your broker on this. They should be able to tell you how roll over is executed or not at all. For options, are you asking about options on the ES? Yes, you can buy/sell the options as a hedge. or just trade them outright. They are 2nd derivatives of SPY.
You should trade the month which you feel most comfortable with... usually for most traders this means the month which has more liquidity. Near the expiration of one contract the other gains more and more volume until the old contracts goes to delivery. P.S. Yes,if you don't know this you should not be trading futures, these are the very rudiments of the market.
Oh brother . This is definitely not the rudiments . This is just the mechanics of order entry . I have tons of trading experience , just not with futures contracts . All I was asking about is rollover ; I am trying to figure out the best way to hedge my bet since I have an outlook going out 3-4 months . Unfortunately , i have not received a satisfactory answer here so I will have to ask my broker when I open my account .
depends on what mkt you are trading. In grains and beans different months are considered old crop or new crop, so quite often the new crop is traded more heavily than the old crop depending on time of year. In financials most like the front month because the spreads are tighter. To maintain your position you must roll out, but by rollout day the spreads in the next month are also tight. Rolling is just the cost of doing business. If you choose to take a position far out the mkt is usually priced accordingly, so it's pay me now or pay me later. Easy way to understand is just watch volume and spreads for the different months. and yes, you must roll yourself, especially important in mkts settled by physical delivery.
also, unless you're short options which are almost sure to expire OTM, almost everyone closes out on rollout day. The reason is, things get really silly in the last minute of trading before the contract expires. Especially for a small trader. Theoretically you may have a good paper profit, but there is nobody at a reasonable price to take the other side. So, to answer your question, if you are talking indexes, it's almost always better to stay in the front month so if things change you can get out.