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I am still wondering about the risk difference between offsetting a position and rollover. As I know, both offsetting and rollover are involved in selling the initial futures contract ( which gives you the profit or loss) so how come rollover maintain the risk position? I am new in market trading. Examples would be appreciated. Thank you so much!

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Lets imagine a flat term structure (i.e. forward curve), all the contracts have the same price, and they all move in tandem. You bought the June contract for $10 a few weeks ago, and now you're faced with either one of these two scenarios.

  1. You want to lock in your gains so far without getting out of the contract, so you offset your position by selling the July contract. This makes you risk neutral since our curve is flat and everything moves together. The next day, the curve moves down by $1, so you lost $1 on your June position and make $1 on your July position. Your pnl for the day is zero.
  2. June contract is about to expire, but your trade thesis has not yet played out and you want to remain in the game so you rollover your position. You sell June, and buy July

Note: In the offset scenario above, our simplistic example eliminates your risk because we assume the curve is flat and moving together. In reality, an offset is simply an imperfect hedge...very close to being perfect, but not so since you still have spread risk i.e. the difference in moves between both positions. In our example, if we assume the curve moves in a correlated fashion, but not exactly the same, June could have fallen by $1 while July would fall by $0.90 giving us a pnl of -$0.10 for the day (our spread risk quantified for one day).

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