In financial terms, “roll forward” has two different meanings, one referring to accounting practices, and another to options contracts. In accounting, it is when people use prior data on assets and liabilities to establish a baseline for a new accounting period. For options traders, it involves closing an options contract and opening a new contract with the same strike price, but a later expiration date. The term intended is usually clear from the context.
Accountants can use the roll forward to track data through multiple accounting cycles. There are several approaches to carrying over data from a previous accounting period, including just transferring the latest balances or setting an arbitrary date for the data transfer. Accountants must be consistent about the method they use to make sure their records are accurate. They must also provide information on request about how they are handling accounting data and need to adhere to industry standards and practices in all their activities.
For options traders, this term refers to retaining a strike price and moving it to a different date. There can be a number of reasons for doing this, ranging from wanting to extend a contract with favorable terms to needing to adapt to a change in the market. It may also be referred to as a roll over in some cases, referring to the fact that the trader is bundling the deal and moving it to a different time frame.
Traders who want to use a roll forward must be able to close out the original contract and negotiate a deal to their satisfaction for the new contract. This process may be done through a broker for traders who do not want to negotiate personally. Brokers will use the terms set by their clients to determine what kinds of deals they can execute. Like other financial representatives, they have a duty of care to their clients and must comply with orders and use the funds in their care wisely.
Whether in accounting or options, the practice requires keeping accurate and detailed records. In the event of a dispute or the identification of an error, it may be necessary to refer to the original records. Software can be helpful with managing records on financial transactions and accounting entries, as it will allow for rapid searching to identify specific transactions of interest. Paper ledgers can be challenging to go through for information, especially when a high volume of transactions is on the record.
