Gold is not cash settled. And GOLD and GOLDM have different settlement dates. The only date where it is viable is 5 OCT contracts. Now why there is a difference of rs.500 there? The difference is too small for full payment as you will be making only Rs.250 per leg. That is 0.8% percent on full margin paid. That means you will be blocking your money for 3 months just to make 0.8%. Money is better deployed else where. EVEN FD GIVES BETTER RETURN THAN THIS! Even tax paid on transaction is more than the profit!
Now if you say you will take leverage. The interest on leverage alone will kill you and send you into negative territory. Understand this very clearly. Arbitrage is not possible for retail traders or investors. Computer algorithms come in and eat up all arbitrage opportunities in seconds.
Mr. G,
Thank you for taking time out to explain. However I don't think that you've understood this correctly.
GoldM & Gold both have same expiry i.e. 5-Oct
Margin to be paid for (sell 10 GoldM & buy 1 Gold) is Rs. 3,72,000
Difference is Rs. 500 (hence we can anticipate profits around 45K)
Time remaining to 5-Oct expiry is 15 days (Today is 17-Sep and Tendor period will start by 1-Oct)
Hence, simply maths says... by investing Rs. 372,000 (may be you wish to keep 10-20K for m2m if at all required)
So by investing 400K (upperside) you have opportunity to earn 45K. This is whopping 11% return (over 250% if annualized) in just 15 days.
LMK your thoughts.