Futures Basis, Premium and Rollover Explained
What is futures basis?
Futures basis is the difference between the futures price and the spot price of the underlying. When NIFTY spot is 24,500 and NIFTY current-month futures trade at 24,580, the basis is +80 points, also called a premium.
When futures trade below spot, the basis is negative and the futures are at a discount. Basis shrinks towards zero as expiry approaches, because on expiry day futures settle at the spot price. This drift towards spot is called convergence.
Fair futures ≈ Spot × (1 + r × t) − dividends expected before expiry
Rollover % = OI in next-month contract ÷ (OI in current + next month) near expiry
Rollover cost ≈ (next-month futures − current-month futures) ÷ current-month futures
Why futures trade at a premium: cost of carry
Buying futures instead of the underlying lets you hold the same exposure without paying the full amount today. The money you do not spend can earn interest. Futures prices include that interest, minus any dividends the underlying will pay before expiry. This is the cost of carry model.
A simple calculation
With NIFTY at 24,500, an annual interest rate of 7% and 20 days to expiry, fair value is about 24,500 × (1 + 0.07 × 20 ÷ 365) ≈ 24,594, ignoring dividends. A basis near 90 points would be "fair"; much higher suggests strong demand for longs; much lower suggests short pressure or dividends.
Why basis changes
- Time: less time to expiry means smaller carry.
- Rates: higher funding rates widen fair basis.
- Dividends: large dividends in index stocks reduce basis.
- Sentiment: heavy long demand lifts premium above fair; heavy shorting compresses it.
Premium vs discount: what it can tell you
| Basis | Possible reading |
|---|---|
| Premium rising above fair value | Aggressive demand for long futures |
| Premium shrinking faster than time decay | Shorts being built or longs exiting |
| Discount on an index | Heavy shorting, hedging demand, or dividend effect |
| Discount on a stock | Often dividend or heavy short interest |
Read basis together with open interest buildup. Rising price, rising OI and widening premium together suggest new long positions; falling price, rising OI and shrinking premium suggest new shorts.
What is futures rollover?
NSE stock and index futures have monthly expiries. A trader who wants to keep a position beyond expiry must close the current-month contract and open the same position in the next month. That is rollover.
Most rollover happens in the last week of the series. Brokers and exchanges publish rollover statistics during that week, and analysts read them as a measure of how many traders are carrying their positions forward.
Rollover percentage and rollover cost
Rollover percentage
Rollover % is the share of total open interest that has moved to the next month. If current-month NIFTY futures OI is 4 lakh contracts and next-month OI is 8 lakh, rollover is 8 ÷ 12 ≈ 67%. Analysts compare it with the three-month average rollover.
Rollover cost
Rollover cost is the spread between next-month and current-month futures, as a percentage. A higher than usual cost means traders are willing to pay more to carry longs, which usually points to long rollover. A lower or negative cost points to short rollover.
Reading them together
- High rollover % + high rollover cost: longs being carried with conviction.
- High rollover % + low or negative cost: shorts being carried.
- Low rollover %: participants closing rather than carrying, less conviction either way.
Rollover and continuous futures charts
Futures charts must handle the switch from one contract to the next. A continuous chart stitches contracts together. Without adjustment, the stitch can show a jump equal to the difference between the two contracts' basis.
This matters for indicators. Moving averages, continuous CVD and volume profile across a roll date can be distorted. Many traders use spot for long-term structure and futures for intraday order flow.
Worked example: NIFTY rollover week
Illustration with plausible numbers.
Two days before monthly expiry, NIFTY spot is 24,400. The current-month futures trade at 24,415 (basis +15, nearly converged). The next-month futures trade at 24,560, a spread of 145 points, about 0.59%, higher than the recent average near 0.50%.
Rollover stands at 72% against a three-month average of 68%, and next-month OI has been rising on up days. Together these suggest longs are being carried at a higher than normal cost. It is a reading of positioning, not a forecast; positioning can unwind quickly if price moves against it.
Basis trading and arbitrage
When basis is far above fair value, arbitrage desks may buy the underlying and sell futures, locking in the excess carry. When it is far below, they may do the reverse where possible. This activity keeps basis close to fair value most of the time in liquid contracts like NIFTY and BANKNIFTY.
For most traders the lesson is that small basis moves are noise. Only unusual deviations, especially around rollover, carry information.
Futures vs spot on the chart
Many Indian traders chart the NIFTY spot index but trade futures or options. Knowing the basis tells you how to translate levels between the two. If spot support is 24,300 and the basis is +90, the same area on the futures chart is near 24,390.
Which one to chart
Spot has no volume, no open interest and no order flow, because the index itself does not trade. Futures have all three, which is why footprint, volume profile and VWAP studies are normally done on futures. Spot is cleaner for long-term structure because it has no roll gaps.
Basis on expiry day
In the last session the basis is small and moves around as the market approaches settlement. Large intraday swings in basis on expiry day usually reflect positioning and arbitrage flows rather than a change in outlook, so traders avoid reading too much into them.
Stock futures
Stock futures basis is noisier than index basis. Corporate actions, dividends and ban-period restrictions under the market-wide position limit can all distort it. Check the corporate action calendar before reading anything into a stock's discount.
Common mistakes with basis and rollover
- Reading every premium change as sentiment. Time decay alone shrinks basis daily.
- Forgetting dividends. Stock futures often trade at a discount ahead of large dividends.
- Using rollover % without cost. High rollover tells you positions are carried, not whether they are long or short.
- Ignoring the roll on charts. A gap on a continuous chart may be the contract switch, not a market move.
Seeing it on the TradingMarble chart
The TradingMarble chart shows NIFTY, BANKNIFTY and F&O stock futures with their footprint and open interest, so you can compare futures and spot behaviour and study how positioning changes around expiry. See features for details.
Futures basis and rollover checklist
- Calculate fair basis from spot, rate, days to expiry and dividends.
- Compare actual premium with fair value.
- Read basis changes alongside price and OI.
- In expiry week, track rollover % against its average.
- Check rollover cost to see whether longs or shorts are being carried.
- Adjust charts and indicators for the roll date.
Futures basis, premium and rollover describe positioning in the futures market. F&O trading carries a high risk of loss; these numbers add context and do not by themselves predict direction.
Frequently asked questions
What is basis in futures trading?
Basis is the futures price minus the spot price. A positive basis is called a premium and a negative basis a discount. Basis reflects the cost of carry (interest minus dividends) plus any extra demand or supply, and it moves towards zero as the contract approaches expiry.
Why does NIFTY futures trade at a premium?
Holding futures instead of buying all the NIFTY stocks frees up money that can earn interest. The futures price includes that interest cost, minus expected dividends, so it normally trades above spot. The premium shrinks every day as expiry gets closer.
What is rollover percentage?
Rollover percentage is the share of total futures open interest that has moved from the expiring contract to the next month. It is usually tracked in the last week of the series and compared with past averages to see how many traders are carrying positions forward.
Is high rollover bullish?
Not on its own. High rollover only shows that positions are being carried. Whether those are mostly long or short is better judged with rollover cost, price direction and open interest changes. High rollover with a high rollover cost often points to longs being carried.
What happens to futures on expiry day?
On expiry, NSE futures settle at the final settlement price derived from the underlying, so the basis converges to zero. Positions not closed or rolled are cash-settled at that price. Traders who want to stay in must roll to the next month before expiry.