How do you rollover futures/options contracts?
What are the procedures involved?
Rollover means closing out the position in the current-month futures contract and taking a fresh position on the next-month futures contracts. For instance, if you have a long position (buy) in February Reliance futures, you can roll it over by closing it out with a short position and simultaneously taking a new position in the March contract.
Rollover of contracts is used only with futures. This is because a position in the futures market can be taken without a significant outlay upfront. Options cannot be rolled over as for every contract you pay a premium that is retained by the option seller.
In futures, only margins have to fork out and if the spot price moves in line with you expectation, this sum would be returned to you when you close out the position.
For instance, assume there is a 40 per cent margin. You have a long position on the February contract. When you roll it over by taking a short position on the February contract and simultaneously, a long position on the March contract, the margin requirement would remain unchanged. Option contracts cannot be rolled in this manner. You exercise an option if it is in-the-money; if it were out-of-money, it would expire worthless. You take fresh positions in the March options, which would involve an outflow by way of premium.
If you have any queries relating to the futures/options please mail them to Futures & Options, Kasturi & sons, 859-860, Anna Salai, Chennai 600 002 or email them to fno@thehindu.co.in with a mention of futures/options in the subject line of the mail.
