Choosing Between a One-Year Future and Rolling Six-Month Futures

Summary

The document compares buying a one-year S&P 500 index future with buying a six-month future and replacing it with another six-month contract at expiry. The question assumes the six-month funding rate stays static and that profit earned during the first period is deposited at that rate. Under those assumptions, the answer says the two approaches should have the same return when other conditions are equal.

The distinction arises if rates change before the second contract is entered. Rolling exposes the investor to the interest rate prevailing at that later date, while the one-year contract fixes exposure through its original maturity. The response therefore identifies future interest-rate movements as a source of return differences and a consideration when choosing the contract structure. It does not provide a numerical example, pricing derivation, or broader discussion of margin, liquidity, or transaction costs, so the comparison is limited to the stated assumptions.

Key ideas

• With unchanged relevant conditions, a one-year future and two consecutive six-month futures are expected to be equivalent.
• Rolling after six months exposes the next position to interest rates available at that time.
• A one-year contract avoids resetting the exposure at the six-month point.
• The stated comparison assumes static six-month funding and reinvestment of interim profit at that rate.

Tags

# What is the difference between buying a future on a stock for 1Y vs buying two 6M contracts in a row?


# What is the difference between buying a future on a stock for 1Y vs buying two 6M contracts in a row?












Consider two positions.

- Buy a 1Y future on SPX index.

- Buy one 6M SPX future today, and roll it into another 6M future after the first one expires. Assume the 6 month funding rate is static across time, and the profit after 6 months is put into a bank account so it earns the funding rate.

My question is purely intuitively, why would these two approaches give different returns, and when is one preferred over the other?

## Answer by Rowan Harley (score 3)

https://quant.stackexchange.com/a/80788

All else being equal, you should be indifferent. However by choosing to roll at 6m instead of buying the 1 year contract, you expose yourself to interest rate risk if the interest rate curve shifts between the 6m and 1y mark.

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