What is Rollover?
What is Rollover?
A rollover means carrying forward your future positions from closing your positions near the expiry date to opening the same new position in a further-out month contract.
In simpler words, the process of carrying forward your position from one month to another month is called a rollover.
On the expiry date, a trader can enter into a similar contract expiring at a future date or let their position lapse on that date.
A rollover happens mainly in options and not in futures. It takes place in forward or futures, in which futures are known as promises while options are classified as rights.
The contracts of equity derivatives in India are decided and settled every month on the last Thursday (If Thursday is a public holiday, the settlement happens a day before Thursday, which is Wednesday).
While rollovers are completed till the close of trading hours on that day, a part of the rollovers begins a week before the expiry date.
However, positions are rolled over to the other month on the trading terminal through a spread window.
For instance, if a trader holds one futures contract of Nifty that is soon expiring in May, he would enter to carry forward this position to May by keying in the spread at which he wishes to roll over the positions to June.
Earlier it was a two-step process, but this spread window has made it easier for all traders in India to rollover.
Rollover is typically expressed as a percentage of total positions. There are no specific benchmarks for rollovers.
However, they are compared based on their historical data, mainly on the trailing three-month average.
Broadly, rollover is an indicator of traders’ earnestness to carry forward their bets on the market. But, the figures will not exactly tell on which direction traders have a bet.
On several occasions, rollovers that are lower-than-average signal shows uncertainty, while higher rollovers show that there is intense market sentiment.
Hypothetically, if rollover in future Nifty starts from May series to June is at 70% and the three-month average is 65%, it means all traders are willing to build more positions and convinced about their views on the market.
However, at times, the trends of rollover can lead in the wrong direction.
For instance, 70% rollover may have taken place at an open interest of a lower base, which is the number of outstanding positions.
While average of 65% rolls would have happened approximately at an open interest of a higher base.
Rollovers are not clearly captured by several exchange websites, unlike trading data. Instead, many analysts depict rollovers by simply calculating and grouping massive amounts of trading data.
Rollovers are possible only in the future and not in options. This is because it is compulsory for futures to be settled at the expiry date, whereas there is a chance that the option may or may not be exercised.
However, it does not mean that options are entirely out of the picture. Some traders confirm their explanation of a rollover by checking multiple changes in the implied volatility (IV) of options of a similar expiry.
High implied volatility along, and a powerful bullish rollover indicates a strong positive sentiment.
- What is Rollover?
- How to Access Rollover Data?
- Are Rollovers Possible in Option?
- How are Contracts Rolled Over and Work in India?
- What are Rollovers in futures and options are classified as?
Rollover is the process of carrying forward your position from one month to another month is called a rollover.
Rollovers are not clearly captured by several exchange websites, unlike trading data. Instead, many analysts depict rollovers by simply calculating and grouping massive amounts of trading data.
Rollovers are possible only in the future and not in options. This is because it is compulsory for futures to be settled at the expiry date, whereas there is a chance that the option may or may not be exercised.
The contracts of equity derivatives in India are decided and settled every month on the last Thursday (If Thursday is a public holiday, the settlement happens a day before Thursday, which is Wednesday).
The rollovers in futures are known as promises, while options are classified as rights.