I want to rollover the position, but the next month contract is in ban period, what should I do in such situation?

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Nandu,

Firstly, when a contract is in ban period, all months of F&O will be in ban, that means you can’t add positions on any F&O contract of any month (present, near or far) on that particular security.

But yes, if a security is in Ban period, and you have a future position for month of March, you can’t roll it over to April like the way you do normally. That is you can exit the present month, but when you are trying to enter the next month, the trading platform will not let you enter, showing an error saying security is in Ban period and no fresh position is allowed.

In such a case, you will have to call the broker and let him know that you have to rollover the existing position and in net are not going to be adding any new positions, and the broker will take this as an exception after looking at your open position, and manually enable your account to be able to take fresh positions in this security. (this is the way it works at Zerodha, can’t vouch if all brokers follow the same method)

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Hi Nandu,

Here's a more exhaustive explanation covering the meaning of 'rollovers', 'trading ban' and 'Open Interest'.

Trading in the F&O segment means you are trading 'contracts' unlike Equity shares that get traded in the Cash market. There is no asset involved while trading in F&O segment and these contracts are cash settled at the end of their expiry periods. Expiry day in India is:

 (a)For Global Indices: Third Friday of every month

(b)For India VIX: Every Tuesday

(c)For All other F&O contracts not forming part of (a) & (b) : Last Thursday of every month

Let us try to understand why or when a contract enters a ban period:

Whenever you want to buy a Future/Option contract, there needs to be a seller. The buyer buys with the assumption that the contract would go up and the seller sells with the assumption that the contract would go down. When a trade happens between the buyer & the seller, there's one 'Open Contract' that comes into being and this is referred to as 'Open Interest'. The Exchanges have a maximum number of such open contracts that they allow for trading in any particular contract. When the number of 'open contracts' exceeds 95% of the total 'allowable contracts' the said contract is said to be under the ban period. While it’s under ban, you cannot add any position [thereby increasing the Open Interest] but are allowed to only offset/reduce your position.

Rollover: A Rollover is when you exit a currently held F&O contract and take a similar position in the next month contract. You do a rollover because your view on the contract you've held remains same but the already held contract ceases to exist soon.

Answering specifically to your question, when you are rolling over a Future contract, you are closing your current month position thereby reducing the Open interest and then adding the same amount of Open interest by taking a new position in the next month contract. This will have NO effect on the total Open Interest allowing you to rollover without any concerns.

To cite an example: Assume you are long in one lot of Reliance Industries January14 Futures. The maximum number of contracts allowed to be traded on Reliance Industries [all expiries] set by the exchange is 50,000 contracts.  Assuming there are 47500 [95% of 50,000] open contracts of Reliance Industries Futures, the exchange puts Reliance Industries under ban.

Now if you'd like to rollover, you'd be squaring off your position in Reliance Industries thereby closing 1 'Open position' which reduces the open interest to 47499 and by buying 1 lot of Reliance Industries Feb14 Futures you'd be adding 1 open interest making the total number of Open contracts to 47500. Note that you having done this trade does not change the total Open interest.

You could do a rollover by simply squaring off your position in the current month contract and taking a fresh position in the next month contract. Some brokerages in India automatically identify your rollover and allow you to take fresh positions for a security in ban while in some cases you may have to call your broker asking him to let you rollover a position.

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Couple of questions here

  • Can Nifty futures be rolled over - If i understand correctly, rollover is same as me selling ‘present’ month contract and buying into ‘near’ month contract?
  • if so you have same brokerage and other slippages charges involved if you sell & buy?
  • Yes, a roll over implies exiting current position and taking the same position in the next month contract
  • Yes brokerage & incidental charges occur in exiting & re-entering
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Great explanation
Now as explained during ban period increase in open interest is not allowed on daily Basis but for intraday trades are allowed as i have read on this article https://www.sptulsian.com/article/77965
But same is not allowed on ZERODHA why it is so???

@Venu, Clears many things! Thanks.