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Back Adjusting (defined)
When a contract rolls from one contract to another, there is usually a
difference in price between the two contracts on the roll date. This
difference in price can result in a price gap on your chart. Back adjusting
takes the difference between the two contract prices and adjusts all
previous price points by that difference to remove the gap. e.g. March
Jellybeans closed at 5.6, 5.7, 5.5, and 5.4 on March 1st, 2nd, 3rd, and
4th. June Jellybeans closed at 5.8 on the 4th. March 4th is the roll date
for Jellybeans so our contract will add .4 to all previous days to close
the gap. Our resulting closing prices for the 1st through 4th are 6.0, 6.1,
5.9, and 5.8. The primary advantages of back adjusting are that the graph
"smooths" the transition between contracts so that it does not give false
signals due to a sudden change in price and existing trends are retained.
Be aware, though, that all prices prior to the most recent roll date are
adjusted and not actual.
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055 - Cont 1st - Rolls on first trading day of the expiration month. 055s
roll from the spot month to the next contract on the first trading day of
the expiration month and have no price adjustment.
056 - Cont Exp - Rolls at expiration. 056s roll from the spot month to the
next contract at expiration and have no price adjustment.
057 - Cont Liq - Rolls based on Volume and Open Interest. 057s roll from
the spot month to the next contract on a date based upon the Open
Interest/Volume roll method and have no price adjustment.
065 - Cadj 1st - Back adjusted, Rolls on first trading day of the
expiration month. 065s roll from the spot month to the next contract on the
first trading day of the expiration month and are back adjusted.
066 - Cadj Exp - Back adjusted, Rolls at expiration. 066s roll from the
spot month to the next contract at expiration and are back adjusted.
067 - Cadj Liq - Back adjusted, Rolls based on Volume and Open Interest.
067s roll from the spot month to the next contract on a date based upon the
Open Interest/Volume roll method and are back adjusted.
Gann contracts are artificially created contracts created by combining
actual contracts together. These contracts roll from calendar month to same
calendar month. For example: March 98 rolls into March 99 and so on. These
contracts roll on the expiration date and have no price adjustment.
Contracts are labeled from 081 through 092. To determine the month
represented, subtract 80 from the last 2 digits. For example: 89 - 80 = 9
(September), 83 is March and 92 is December.
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Hope that helps.
Kevin Berg
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