The possible danger of loss that long-term hedgers face when reinvesting in more distant futures contracts as they retire near-month futures falling-due. In other words, as expiration approaches, hedgers sell futures they have long positions in and re-enter the positions in more distant maturities. In so doing, hedgers incur reinvesting costs to a magnitude depending on the costs and benefits of closing out near-month contracts and creating new positions in far-month ones.
October 31, 2023
