Is Roll Risk Higher for Short-Dated or Long-Dated Contracts?
Roll risk is significantly higher for short-dated contracts. Because they expire sooner, they require more frequent rolling, increasing the exposure to unfavorable roll yields and higher cumulative transaction costs.
Long-dated contracts are rolled less often, reducing the frequency and overall impact of roll risk.
Glossar
Roll Risk
Exposure ⎊ Roll risk, within cryptocurrency derivatives, represents the potential for unfavorable price movements in the underlying asset between contract issuance and expiration, impacting the profitability of a hedged or speculative position.
Unfavorable Roll Yields
Yield ⎊ The concept of unfavorable roll yields, particularly within cryptocurrency derivatives, signifies a scenario where the cost of extending an options contract's expiration date exceeds the theoretical value derived from the underlying asset's price movement.
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.