Define ‘Roll Yield’ and Its Impact on a Futures-Based ETF.
Roll yield is the gain or loss generated when a futures-based ETF closes out (rolls) expiring near-month futures contracts and replaces them with new, longer-dated contracts. In a contango market, the roll yield is negative (a loss) because the new contracts are more expensive.
In a backwardation market, the roll yield is positive (a gain).
Glossar
Perpetual Swap
Mechanism ⎊ Perpetual swaps, within cryptocurrency markets, represent agreements to exchange cash flows based on the difference between a cryptocurrency’s current price and a user-defined price, perpetually, without an expiration date.
Roll Yield
Income ⎊ The profit or loss generated by moving a futures position from an expiring contract to a new one is a critical factor in the total return of a derivative-based portfolio.
ETF
Asset ⎊ An Exchange-Traded Fund (ETF) within the cryptocurrency space represents a basket of digital assets, mirroring the structure of traditional ETFs but applied to crypto holdings.
Roll
Mechanism ⎊ A roll, within cryptocurrency derivatives, signifies the systematic closing of a near-term contract and simultaneous opening of a further-dated contract with the same underlying asset, effectively extending exposure.