You’ve heard of Shark Week. Well this is Rolls Week.

For the SFE bonds, this is when all the activity moves from the near expiry to the next. In this case, it is moving from Dec into March.

On CQG, you should be able to find the calendar spread for the Dec-Mar 3yrs and the 10yrs. Call them up and watch. There are massive amounts of volume going through. Some of it comes from funds and institutions rolling their longer term positions. Others are spec traders, essentially acting as market makers or trying to make a tick here and there.

Rolls week can be a confusing time if you are not aware it’s going on and particularly if you are watching time and sales in the nearby contract.

This is because of the way a trade on the exchange spread is settled. Let’s use an example. If you buy 10 lots in the Dec 3yrs at 97.38, your account will settle 10 lots at 97.38. That’s pretty simple. However if you buy 10 calendar spreads at say -0.03, your account will NOT show that calendar spread price. Instead it will settle the trade as individual trades in each contract at a differential of -0.03.

So buying a spread at -0.03 might see the trade settle as: buying December at 97.380 and selling March at 97.410. You can see the price differential is still -0.03 – the spread price you traded but what appears on your statement are trades in the individual legs.

The confusing bit for the new trader is these trades also appear on time and sales as individual trades. So you’ll be seeing big lots traded go through both the 10yrs and the 3yrs in time and sales, but never actually see them transact in the individual contracts. It’s like the trades just magically appear. It is because the transaction happened in the spread market, then settled in the individual markets.

Here is a snapshot of the 3yr bond market for Dec, March and the spread:

Here is a snapshot of the 10yr bond market for Dec, March and the spread:

In both the 3yrs and 10yrs, you can see a very large amount of volume is waiting on the bid and the offer. This simply means there are a lot of people wanting to roll their short or long positions from Dec to March.

So is the spread market tradable for small size? Yes it is, but it is rare to see a large move in the spread. In fact it can stick to an extremely tight range. As such, being able to scalp this market comes down to being in the queue ahead of the next guy.

Mechanics of a Roll Trade:

Other Things to Note about the Roll Period: