Micro WTI Crude Oil futures contracts, from CME Group, are listed monthly and expire one day prior to the expiration of the corresponding contract month of the standard WTI Crude Oil futures contract.
Prior to the contract expiration, a trader has three options:
To offset a position, a trader must make an opposite and equal transaction of their current position. This allows you to monitor the current market level and assess the profit or loss of offsetting your position at the then-current market prices – without taking the futures contract to expiration.
For example, a trader who is long five August Micro WTI Crude Oil futures contracts will need to sell five August Micro WTI Crude Oil futures contracts to offset their position. The difference in price between the initial position and offset position will represent the profit or loss on the trade.
Micro WTI Crude Oil futures are cash settled, based on the daily settlement price of the corresponding CL futures contract.
For example, if a trader bought ten September Micro WTI Crude Oil futures contracts at $64.35 and, upon expiration, the Micro WTI Crude Oil futures contract settled at $64.90 – the traders account would be credited $550.
This is calculated by multiplying the price increase of the contract (55 ticks) by the dollar value of one tick ($1.00) by the number of contracts purchased (10).
Finally, traders may wish to extend their position in Micro WTI Crude Oil futures and maintain continuous exposure to the contract. This is referred to as rolling the futures or rolling forward and allows a trader to extend a futures contract from one expiration to the next or one that is further out on the curve.
This can be transacted using a calendar spread. A calendar spread allows a trader to trade out of an expiring contract and into a deferred contract. By executing a calendar spread, a trader’s Micro WTI Crude Oil futures position can be extended into the future by one or more months depending on which deferred contract they “roll” into.
Let’s assume, a trader is short three October Micro WTI Crude Oil futures contracts and wants to extend their short Micro WTI Crude Oil futures exposure to November. They enter a single order – known as a calendar spread ‒ to roll the contracts forward. The trader would simultaneously buy the October futures and sell November futures resulting in a net zero position in October, and a short position of three November Micro WTI Crude Oil futures contracts. The trader has seamlessly moved their short position from October to November.
Every futures contract has an expiration date, and every trader is different, but understanding how to manage futures expiration is important for all traders.