Why are markets volatile during rollover?

Why are markets volatile during a rollover. Is is it only because of the fact that they have to sell the current month contract and buy the next month contract or is there some other answer as well.


If by rollover you mean expiry day, then the markets are as volatile as any other trading day. Volatility is driven by policy announcements, global market strength, budgets, results etc. These volatility driving factors need not occur on the last Thursday of every month at the time of expiry. It could occur anytime during the month.

Towards end of expiry day, the stock price and the future price must match and this could cause some additional movement in the sense that the futures price has to tend to the stock price, and if the futures is still at a premium or a discount, then this gap has to be closed regardless of what happens in the stock.

Also, the gap between current month and next month contracts could slightly widen during expiry as the current month future will tend to and match the stock price but the next month future will still factor in the cost of carry and trade at a premium.

I have observed in some cases current month future price is higher than next month future price nearing expiry date.