Need an example - Guide to Future & Options

#1
Hi,

I am reading this book Guide to Future & Options by Ankit and Jitendra Gala.

In this book, the authors have mentioned: -

" When F < (S + CC - CR) Buy the (under priced) futures contract, short-sell the underlying asset in spot market and invest the proceeds of short sale until the maturity of futures contract. This is called 'reverse cash and carry' arbitrage.

Where F is the Future Contract's Price, S is the Spot Price of the underlying security, CC is the Carry Cost and CR is Carry Return (income).

Can someone please explain this para with an example, how can I short sell shares in the spot market?

thanx :)

Devin
 

lemondew

Well-Known Member
#2
If you already have stock then sell it and buy futures. thats what it means.

suppose your 1 month FD return is 0.5%. and CC < 0.5% of stock cost . Sell stock buy futures and invest the money in FD. Theorotically but brokerage and taxes arent included. Also during dividends and bonus. Futures takes a nose dive but holding futures gives no bonusses ... anyway are u reading for academic purpose. it isnt worth trying to understand every word written for ur day to day trading....
 
#4
Honestly,

I am struggling to find my feet - tried position trading, there isn't much fun in waiting.

Learning about futures and bought these books : -

Guide to Futures & Options
How to Make Money Trading Derivatives

Both are useless to say the least.

Nothing is explained properly, its like they were wrote as an after thought - there is nothing much about trading futures, more like trading options.

Now reading The Complete Guide to Day Trading downloaded a free from the author's site.

Let's see where it takes me.

Thanx for all the help.

:)
 

lemondew

Well-Known Member
#5
I think we all eventually learn to be profitable in our own method. It takes time, patience and learning. There are many sources here in traderji where many have written their experiences.
1) The question is will we still have funds till we learn. It may take few months to some years to learn it and we shdnt loose out all the funds till then. I know people who invest 2-3 lacs in derivatives before knowing anything only to loose in few days and quit.
2) Do we have the time, patience and passion to pursue it.



Honestly,
I am struggling to find my feet - tried position trading, there isn't much fun in waiting.
Learning about futures and bought these books : -
Guide to Futures & Options
How to Make Money Trading Derivatives
Both are useless to say the least.

Nothing is explained properly, its like they were wrote as an after thought - there is nothing much about trading futures, more like trading options.

Now reading The Complete Guide to Day Trading downloaded a free from the author's site.

Let's see where it takes me.

Thanx for all the help.

:)
 
Last edited:
#6
I have the patience and most importantly perseverance - I have been learning and trying for the last 6 months - till now I have made 3000 and lost 4500 - I read a lot, I keep a journal and trade a plan with a position sizing as per my risk capacity.

You are right these 2 are the main factors - you need patience and perseverance comes with position sizing.

Cheerios :)
 

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