Rollover of contract means, a market participant carrying forward his future position by switching from the current month contract closer expiry to another month future contract with expiry in another month.
Basically it’s a two step process. In it, you close your current position in a contract that is about to expire and open a similar new contract which has expiry in a different month.
Rollover is done only for futures.
For example, suppose you have a position in the nifty future which will expire on 28th December. You are expecting the market to go up in January and want to hold onto your bullish view on the market.
As the current position will expire on 28th December, you exit the current position and take a new position for the January Nifty Future contract with an expiry date in January.
This concept is referred to as rollover or rolling over a contract.
In simpler words, the process followed to carry forward contracts from one month to another month expiry is called rollover.
In India, equity derivatives are settled on the last Thursday of every month. If last Thursday is a trading holiday, then the settlement is done a day before last Thursday, which is Wednesday.
Rollover is not possible in options as there is a chance that option may or may not be exercised at the expiry date.
In futures you have three expiry: current, mid and far month. If the current month is September, then mid month will be October and far month is November.
If you are trading the September month future contract because of higher liquidity and have a bullish view for next month, then you can not hold your current position beyond expiry, which will be last Thursday of the September month. What should I do now?
I can rollover my position from September expiry to October expiry. To do it, I will close or exit my September position and will go long on the October contract. This process is called Rollover as I am rolling over my position from September to October on a contract with the same underlying security.
Many traders prefer to rollover their position one or two days before expiry to avoid volatility.
Disclaimer: In addition to the disclaimer below, please note, this article is not intended to provide investing or trading advice. Trading in the stock market and in other securities entails varying degrees of risk, and can result in loss of capital. Most investors and traders lose money. Readers seeking to engage in trading and/or investing should seek out extensive education on the topic and help of professionals.
