NALCO Discount in Futures

[masterjee]

Nalco is having a discount of Rs 25 in far month adn around Rs 10 in near month? What could the reason be?

regads
m

 

[ivanboesky]

Nalco is having a discount of Rs 25 in far month adn around Rs 10 in near month? What could the reason be?

regads
m

Using Nalco stock to hedge Aluminium price exposure.

 

[alokdaga]

SOme dividend story also maybe ?

 

[ivanboesky]

SOme dividend story also maybe ?

I dont think Nalco can pay anything that high as a dividend. Plus its been this way for a long time now. Dont think the market is pricing in such a high dividend into the futures every month!!

 

[aroymkp]

logical thinking !

 

[masterjee]

There seems to be some demerger story around -
arbitrage should logically narrow the spread between spot and futures - but it does not seem to be happening
regards
m

 

[ivanboesky]

This is a case of reverse arbitrage. The arbitrageur will have to sell Nalco stock and buy the futures. If this is done in sufficient size, the discount will narrow. Problem is, most pension funds/ insurance companies/ banks are not allowed to take an exposure to derivatives. So they hold large quantities of stock, and cannot use derivatives to enhance their returns.

 

[masterjee]

Spreads can also reduce in another way. Since Nalco spot has now gone up by 35Rs, it seems to be someone noticing this anomaly and then buying futures and then buying shares to put a royal squeeze on the futures sellers. Spread should narrow as the future sellers cover.

regards

m

 

[ivanboesky]

Spreads can also reduce in another way. Since Nalco spot has now gone up by 35Rs, it seems to be someone noticing this anomaly and then buying futures and then buying shares to put a royal squeeze on the futures sellers. Spread should narrow as the future sellers cover.

regards

m

True, you are talking about a short squeeze. However, "someone noticing this anomaly" should have reacted a year back (if not earlier), since Nalco has been in backwardation for very long now.