In Ashwini Gujrals book he refers to Cash and Futures Arbitrage....He says the Cash and Futures Arbitrage is a strategy which offers risk free returns...the strategy is based on Stock price and future price differences....Can Seniors explain this system and how it can be executed......
Thanks and regards
Sreenan
This form of arbitrage has essentially disappeared from the market or has become unprofitable. . But in theory this is how you do it.
On 31 Dec, Reliance closed at 1090 in cash and 1096 in futures.
You buy 300 Reliance in cash and short one lot(300 units) in futures. The difference between cash and futures Rs. 6/- is your profit no matter where Reliance ends on 28 Jan the expiry day for the contracts. Now you add the cost of trading (Brokerage, other taxes), funds blocked to take delivery of 300 Reliance and calculate whether the profits are worth it if there are any profits. It is worth doing it if the difference between the cash and futures is large to cover all your costs and give you a return better than the bank rate.
