Definition
Rollover Cost
Rollover cost is the price difference paid to shift a futures position from the near month to the far month.
When you roll a long futures position, you sell the near-month contract and buy the costlier far-month one; the gap between them is the rollover cost, reflecting the cost of carry for the extra month. For a short position, the roll can sometimes earn a credit instead.
NSE traders weigh rollover cost when deciding whether to carry a position forward — a high cost in a strongly contango stock future eats into returns. The aggregate rollover cost across the market is also tracked around expiry as a read on how much traders are willing to pay to stay positioned.
Related terms
- ContangoContango is when futures trade above the spot price, the normal state reflecting the cost of carry.
- Calendar Spread (Futures)A futures calendar spread buys one expiry and sells another of the same underlying to trade the spread, not direction.
- Cost of CarryCost of carry is the net cost of holding an asset to a future date, comprising financing cost less any income, and it determines the fair-value difference between a futures price and the underlying spot price.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.