As we approach the next triple witching date, March 17th, not only is it an important options expiration. It's also when many futures contracts expire. Thus it is important to consider the implications. But first let's talk a little bit about why futures contracts exist.
The origin of futures
Futures contracts are financial instruments that allow traders to buy or sell an asset at a specific price and date in the future. Futures were created to help manage risk for producers and consumers of commodities, such as farmers and manufacturers, who needed a way to protect themselves against price fluctuations. These contracts are standardized agreements that are traded on exchanges, with each contract representing a specific quantity of the underlying asset.
Futures contracts have expirations on regular intervals, usually monthly or quarterly. At expiration, traders must either take delivery of the physical commodity or settle the contract in cash. Because futures have a fixed expiration date, traders need to roll over their positions before the contract expires to avoid taking delivery of the underlying asset. Rolling over a futures contract involves closing out the current contract and opening a new one with a later expiration date.