Rolling Hedge


DEFINITION of 'Rolling Hedge'

A strategy for reducing risk that involves using the high levels of liquidity typically present with exchange-traded futures and options in order to achieve a continual risk-offsetting position. A rolling hedge is done by closing out existing positions as they near maturity and then concurrently opening new positions with maturity dates further in the future.

BREAKING DOWN 'Rolling Hedge'

One of the main benefits of rolling a hedge is that by extending the time until maturity further into the future, there is less chance of large price movements in the contract in the short term, because the maturity date is still distant. This reduces the risk of incurring margin calls on the position.

  1. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  2. Futures Market

    An auction market in which participants buy and sell commodity/future ...
  3. Derivative

    A security with a price that is dependent upon or derived from ...
  4. Hedge Ratio

    1. A ratio comparing the value of a position protected via a ...
  5. Expiration Date (Derivatives)

    The last day that an options or futures contract is valid. When ...
  6. Naked Position

    A securities position that is not hedged from market risk. Both ...
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  1. How are futures used to hedge a position?

    Futures contracts are one of the most common derivatives used to hedge risk. A futures contract is as an arrangement between ... Read Full Answer >>
  2. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  3. How do hedge funds use equity options?

    With the growth in the size and number of hedge funds over the past decade, the interest in how these funds go about generating ... Read Full Answer >>
  4. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  5. How do futures contracts roll over?

    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
  6. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>

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