How futures contracts rollovers help us to gauge market trend; Here's a list of stocks that witnessed good rollovers

Derivatives - F&O
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Rollover is one of the metrics to gauge the market mood. In other words, rollover or rolling over a contract means carrying forward the futures position by switching from the current month’s contract closer to expiration to another contract with an expiry in another month. The rollover of a position is limited to the futures segment only, not the options.

Traders do the rollover for a variety of reasons.

  1. They expect the trend to continue in the near future.

  2. They are not willing to book losses and expect the trend to reverse from the current condition.

  3. Market participants who take hedge positions by buying a stock in the cash segment and sell it in the futures market.

So, why are the rollovers important? A large percentage of rollovers indicates the trend to continue. Fewer rollovers indicate a trend reversal. It means closing the positions but not getting into the fresh positions. The question is how to calculate the rollovers. The rollover percentage is derived from the open interest data. The next month’s open interest is divided by all three months’ open interest, i.e., near month, next month and far month’s open interest multiplied by 100.

The Nifty rollovers were at 76% to the September contract, which is less than the three-month average of 78.69%. It is less than last month’s rollovers of 82%. This is an indication of the trend to reverse. The first day of September already showed a sign of reversal by moving higher by 0.94%. The market-wide rollovers do not see any change as they were at 90.98% versus the monthly average of 90.82%. The bank nifty rollovers at 76%, almost equal to the three-month average, do not indicate any significant change.

On a stock-specific activity, the highest rollover was seen in ICICI Bank, Godrej Consumer, Dabur, United Spirits and Jindal Steel and Power in the September series. The rollover activity was relatively low among Vedanta, NTPC, ONGC, Max Financial and Escorts.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet, and is subject to changes. Please consult an expert before making related decisions.

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