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I have the following bars around an open interest roll date (all bars stated date, contract, settle, previous day open interest) for CME corn futures.

date,symbol,settle,previous_day_open_interest
2018-06-11,ZCN2018,367.25,589007
2018-06-11,ZCZ2018,388.25,587840
2018-06-12,ZCN2018,377.5,566301
2018-06-12,ZCZ2018,398.25,594274
2018-06-13,ZCN2018,376,527519
2018-06-13,ZCZ2018,397,600335
2018-06-14,ZCN2018,363,487860
2018-06-14,ZCZ2018,384.5,604879

Note that the most liquid contract flips from the N to the Z on 6/12.

Question - how exactly would I build a backwards ratio adjusted continuous contract on these bars?

What have I tried

I'd have thought the following:

1) The "signal" to switch from one contract to the other happens on 6/12, meaning the first date I can be on the new contract would be 6/13.

2) I would adjust the 6/12 and 6/11 bars by the ratio of settlement prices on 6/12 (398.26/377.5=1.054967). The 6/12 settlement would now be stated at the back contract value while 6/11 would be truly ratio adjusted.

date,settle,previous_day_open_interest
2018-06-11,387.436589403973,589007
2018-06-12,398.25,566301
2018-06-13,397,600335
2018-06-14,384.5,604879

However, I purchased the Stevens continuous roll series, which differed in 2 spots:

1) The ratio used for the 6/11 and 6/12 bars seemed different, and

2) They reported the front contract "previous_day_open_interest" on the 6/13 bar, even though there had already been enough time to move to the new contract on 6/13. 

date,settle,previous_day_open_interest
2018-06-11,387.7613032,589007
2018-06-12,398.5837766,566301
2018-06-13,397,527519
2018-06-14,384.5,604879
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If the previous_day_open_interest is interpreted to mean "the OI yesterday in the contract that we were trading yesterday" then Stevens choice of 527519 for 2018-06-13 makes sense. In your interpretation you are reporting the OI yesterday for a contract which was not chosen yesterday (i.e. not the one we were trading) and this a different interpretation, which I find less convincing.

The "July to December Multiplier", which when applied to [2018-06-13 price of] 376 yields 397 is 1.055851. When this multiplier is applied to the July price of 2018-06-12 namely 377.5 we get 398.5837766 which perfectly agrees with the Stevens figure. So again I agree with Stevens. The multiplier is computed on the day the new contract comes in, namely the 13th, and applied on the days before this.

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  • $\begingroup$ I think I get it. So Stevens assumes that I hold the N contract for the trading day of 6/13 (assumed because the open/high/low are adjusted in the Stevens 6/13 bar, but not settle), only rolling at settlement on the 6/13. Question: if I have the signal to switch contracts from the 6/12 bar, why do I assume I wait a whole trading day to rebalance? If the open interest roll rule is supposed to mirror an equivalent trading rule, wouldn't I roll at the beginning of 6/13 trading (e.g. at something closer to the 6/12 settle or 6/13 open prices)? $\endgroup$
    – MikeRand
    Jun 24, 2018 at 19:39
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    $\begingroup$ I think it is just traditional to roll at the close, in this case at the close of 6/13: you sell N at 376 and buy Z at 397. There is no strong justification for this other than the close is a busy time and there should be plenty of liquidity to do the switch. And, also, tradition (I have never seen rolling at the open). $\endgroup$
    – Alex C
    Jun 24, 2018 at 20:08

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