Should you switch to a new e-mini contract on a rollover day?

Many futures contracts (including e-mini futures contracts) roll over to a new contract on a certain Thursday in March, June, September, and December. They have to because the old contracts are bound to expire within a week or so. Among them are all US stock index futures and their e-mini counterparts. That means, ES, NQ, YM, TF, and a few other more or less popular among e-mini futures day traders whose ranks seem to keep growing.

The certain Thursday in question is usually the second Thursday of one of the rollover months mentioned, unless the first Friday of the rollover month happens to be also the first day of that month as was the case in March 2013, in which case the rollover Thursday is also the first Thursday of the rollover month. The general rule is that the rollover day is the first Thursday after the first Friday of the rollover month.

But is it always a good idea to switch to a new e-mini futures contract on a rollover Thursday or should you wait till the following Friday, that is the very next day?

Assuming you want to trade on the rollover day, this is a somewhat important question. Let me try to answer it based on my experience, although I must admit that over the last several years this experience has been limited to trading YM, the Dow e-mini futures contract, so it may not necessarily be as useful when applied to other US index e-mini futures, but then again, it also may.

The thing is that in the past I have forgotten more than once to switch to a new contract on a rollover Thursday and I must say that I noticed it only the day after when the volume and bars on the 1-minute charts and the ease of trading did tell me that something was wrong. And vice versa, this past rollover Thursday, March 7th, I switched to a new contract and I was quite disappointed by how slow the action in it was. Things improved considerably the very next day.

The moral of this experience is that you probably want to check the volume to see if it makes sense to switch to a new contract right on its rollover day or if you should wait till the next day. If you do not switch, most likely nothing dramatic will happen, and you may actually avoid suffering trading a pretty thin market.

You may as well abstain from trading on a rollover day, as some traders do, and start trading a new contract on the first Friday that follows that day.

To make my point more explicit, let me show you the 1-minute chart in YM in the new, June 2013, e-mini contract and the old, March 2013, contract. The difference between the two charts is quite conspicuous, with the latter being much smoother than the former. Those tiny bars of zero size (the price did not move within an entire minute) show little interest on the part of market participants. It's tough to trade a market like that, so no wonder that I was struggling a bit that day.

Switching to a new contract on a rollover day is a bit of a ritual for many futures traders, and that's about what it is. A ritual that you may choose not to participate in. In fact, you have a whole week to switch to trading the new contract and while doing so sooner makes more sense than doing it on the very last day before its expiration, there is no need to do so right on the rollover day.

Most brokers encourage doing so as they want to move their clients to the right contract as soon as possible, but you may as well choose to switch on a day that you find optimal and it does not always have to be the rollover Thursday.

For more about the futures rollover days, see also this article.

Posted on March 10th, 2013.