What is rollover premium in futures? Explained

Rollover premium is the price difference between the near-month futures contract and the next-month futures contract when traders shift their positions from an expiring contract to the next one.

In simple terms, it tells you how much extra (or less) traders are paying to carry their position forward to the next expiry.

How rollover works (simple example)

Assume this is gold futures:

Here, the rollover premium is:

Rs 350 (February – January)

This means traders are willing to pay Rs 350 extra to stay long in the next month.

When is rollover premium positive?

Rollover premium is positive when:

• Next-month futures trade higher than the expiring contract
• Market is in contango
• Traders expect prices to remain firm or rise
• Carrying costs (interest, storage, insurance) are built in

This usually indicates bullish or stable sentiment.

When is rollover at a discount?

Rollover happens at a discount when:

• Next-month futures trade below the near-month contract
• Market is in backwardation
• Traders expect prices to soften
• Short-term supply tightness exists

This can indicate cautious or bearish sentiment.

Why rollover premium matters

Rollover premium helps traders and analysts understand:

• Market sentiment (bullish vs cautious)
• Cost of carry
• Liquidity flow across expiries
• Whether big players are rolling long or short positions

It is widely tracked in index futures, commodity futures, and currency futures.

Rollover premium in commodities vs equities

How analysts use rollover data

• High rollover premium + high volumes → strong conviction
• Low premium + falling volumes → lack of confidence
• Premium turning negative → trend weakening

In Short – Rollover premium refers to the price difference between the expiring futures contract and the next-month contract, indicating the cost or benefit of carrying positions forward.