Residual Interest Rate Delta in Equity Futures Rolls

Summary

The document considers whether a position that trades one S&P futures contract against another has residual delta requiring a hedge. The response says a small dollar delta can reflect interest rate exposure between the two contracts’ roll dates. This is a reminder that a calendar spread in equity index futures may retain sensitivity to financing assumptions even when the contracts are traded as a roll.

The answer illustrates that exposure with a market expectation of a Federal Reserve rate increase by the December roll date and the possibility of a rate decline if that increase does not occur. It does not quantify the sensitivity, describe how to calculate or hedge it, or establish whether the example reflects current conditions. The practical decision therefore requires measuring the position’s interest rate exposure and considering the trader’s risk limits; the brief exchange offers a directional explanation rather than a full hedging procedure.

Key ideas

• A spread between equity index futures maturities may retain a small dollar sensitivity.
• The response attributes that residual exposure to interest rates over the period between roll dates.
• Expected central bank policy and changes in rates can affect that exposure.
• The document gives no calculation method or complete hedge recommendation.

Tags

# Delta hedging with futures


# Delta hedging with futures












If I trade a futures roll on S&P on two futures contract, say 100 contracts of dec vs mar roll. Do I have any residual delta to hedge? I see small residual $ delta, should I hedge this?

## Answer by dm63 (score 1)

https://quant.stackexchange.com/a/42988

Yes, you should see a small interest rate delta which represents exposure to interest rates between December roll date and March roll date. What's the risk? The market currently assumes that the Fed will hike in December. If they don't , rates could fall 25bp during that period.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.