A reader asks:
When trading coffee futures, we currently hold an open position in the May contract to hedge a physical coffee contract.
Since we have not yet finalized the physical deal, we want to keep our hedge and move the open position to later delivery months (such as July or September).
Aside from closing the May position and opening a new one in the later month, is there another way to roll the position forward?
Response from the Bank for Investment and Development of Vietnam (BIDV)
Besides buying or selling outright—meaning directly closing the current position and then opening a new one—traders can use a spread order (also called a calendar spread).
This order captures the price difference between the two delivery months.
Example:
If you are long 30 lots in the May contract and want to move that position to July, you could place a spread order:
Sell 30 May/Jul @ –14
Once the order is filled, your long position in the May contract is closed and you simultaneously hold a long position in the July contract.
Advantages of Using a Spread Order
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Single Transaction: You only need to execute one order to close the old position and open the new one.
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Reduced Market Risk: Because both legs of the trade are executed together, you avoid the price slippage that might occur if you had to place two separate outright trades while the market is moving.
This approach allows you to maintain your hedge without exposing yourself to unnecessary price volatility during the rollover.