Overview
While Eris contracts can be left outstanding to underlying maturity, end users often roll positions quarterly as calendar spreads to stay in the most actively quoted current contract, or to maintain a constant underlying tenor
A calendar spread involves the execution of a buy and sell for two contracts with the same underlying tenor but with Effective Dates one quarter apart from each other
How to Trade Eris Calendar Spreads
Eris contracts can be rolled in a similar fashion to UST Futures. Like outright trades, Eris calendar spreads can be traded electronically, or as a block where the combined notional exceeds 100 contracts ($10mm notional)
- Listed Spreads: Trade combined package electronically
- Single Block Trade: Trade combined package by voice
- Legging: Trading the buy and sell legs independently introduces the risk of prices moving between fills, but this may be mitigated by utilizing 3rd party ISV autospreading tools
Conventions & Key Concepts
Buy The Spread: Buying the FRONT contract and selling the BACK contract, ie rolling a short position (paying fixed) to the next active contract
Sell The Spread: Selling the FRONT contract and buying the BACK contract, ie rolling a long position (receiving fixed) to the next active contract
- Typically, calendar spreads will begin quoting during the last week of the month preceding the Effective Date of the front contract, ending three business days prior to the Effective Date
- The quoted spread will be the net of the front leg price minus the back leg price
- After the trade, the individual prices will be determined by adding or subtracting the spread from the anchor leg via the CME Group's Standard Method (the SLEDS method is also available)
Example: 5Y Eris Implied vs Listed Spreads
To roll an existing long position (receiving fixed), a customer would sell the front contract and buy the back contract selling the spread, either individually, or as a package
