While trading or investing in a systematic manner. Many professionals use the future and options as they go to various instruments to make money. Future and options is a multiverse of too many strategies and opportunities, it all depends on your forecast and understanding of the market sentiments. Some strategies can even give you money when you are partially incorrect with the understanding of the market. Especially if you are an option seller, you can make money by virtue of the time value decay. However, this one is not about options but understanding the benefits of rollovers of future contracts and understanding when and how to execute that. The world of options and futures is very creative and fascinating. To some it may be mind boggling, to others it may work great as a way of generating a steady cash flow over a time horizon.
The index futures like the scrip fo banknifty is one of the most traded instruments. It is very important to keep the risk managed and hedged properly. While trading in index futures many choose to rollover their contract. This is a smart way to limit risk and create the opportunity for being right with your technical analysis of the market.
To understand this concept, first let us understand what entails a futures contract. What tracks the prices of a contract and how is it taken into account. Usually when a contract expires, the job of the clearing house and the exchange should match the buyer and seller of the contract. In commodity markets this may take the form of physical settlement, however such is not the case for the financial markets. A simple way of carrying forward the position is to close the current month contract and buy the near month contract. The buy could be a short or a long position, the activity will be termed as a rollover.
What is the meaning of rollover and how does it apply to the stock market? Rollover is a market activity that is carried out by various investors or professional traders. Hedge funds, foreign portfolio investors and any big ticket size trader would definitely be aware of this as this is the most common way of carrying forward their position. The way how a contract can be squared off depends on the market .
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