arbitrage

lemondew

Well-Known Member
#1
Some questions related to arbitrage

1. Can the future prices be very high something like 0.5 % more than spot price on expiry day due to any scenario.

2. I know futures price goes below the spot price during bear phase or when some bonus/split is expected. Can the future price suddenly spike up and the gap with spot price go up considerably like 1.5% due to any events.
 

tradedatrend

Well-Known Member
#2
Some questions related to arbitrage

1. Can the future prices be very high something like 0.5 % more than spot price on expiry day due to any scenario.
NOT AT ALL

At the time of expiry future and spot are precisely same

2. I know futures price goes below the spot price during bear phase or when some bonus/split is expected. Can the future price suddenly spike up and the gap with spot price go up considerably like 1.5% due to any events.
If you find future price below spot price, there will be always an opportunity for arbitrage (but problem is that you can't carry your short in cash"
 

lemondew

Well-Known Member
#3
Thanks for your response.
Regarding 2 question let me put it another way. Lets say I buy 1 lot equities in cash and short future 1 lot with 0.6 % premium. Can the gap be increased to 1.5 % for any reason? From you first answer I know by expiry I ll get near 0.6% but do I ve to maintain 1 % for spike from MTM perspective for any scenarios where future trades 1.6% premium to spot after I initiated.
If you find future price below spot price, there will be always an opportunity for arbitrage (but problem is that you can't carry your short in cash"

Originally Posted by lemondew View Post
2. I know futures price goes below the spot price during bear phase or when some bonus/split is expected. Can the future price suddenly spike up and the gap with spot price go up considerably like 1.5% due to any events.
 

tradedatrend

Well-Known Member
#4
Thanks for your response.
Regarding 2 question let me put it another way. Lets say I buy 1 lot equities in cash and short future 1 lot with 0.6 % premium. Can the gap be increased to 1.5 % for any reason? From you first answer I know by expiry I ll get near 0.6% but do I ve to maintain 1 % for spike from MTM perspective for any scenarios where future trades 1.6% premium to spot after I initiated.
Yes you will have to maintain extra margin for some unforeseen events, but end of the day return on capital would be too meager
 

anuragmunjal

Well-Known Member
#5
NOT AT ALL

At the time of expiry future and spot are precisely same



If you find future price below spot price, there will be always an opportunity for arbitrage (but problem is that you can't carry your short in cash"
Dear friend

most of the time, at the time of expiry, future and spot prices will not be the same..becos futures would not expire by the last traded price in cash, but the avg of last half an hour traded price of cash.

regards
 

anuragmunjal

Well-Known Member
#6
Thanks for your response.
Regarding 2 question let me put it another way. Lets say I buy 1 lot equities in cash and short future 1 lot with 0.6 % premium. Can the gap be increased to 1.5 % for any reason? From you first answer I know by expiry I ll get near 0.6% but do I ve to maintain 1 % for spike from MTM perspective for any scenarios where future trades 1.6% premium to spot after I initiated.[/QUOT
Dear friend,

99.99% times it will not go to 1.6% or even 1% as there are sfwares which are constantly looking for oppertunity for much lesser premium. but as a trader, u must always be prepared for an eventuality... maybe some sudden news release.. and safeguard yrself.

regards
 

tradedatrend

Well-Known Member
#7
Dear friend

most of the time, at the time of expiry, future and spot prices will not be the same..becos futures would not expire by the last traded price in cash, but the avg of last half an hour traded price of cash.

regards
Essence of my words were, if you don't cover your future position on expiry day, then price of future would be immaterial, and contract shall be settled as per the closing price of cash determined by exchange on that day!
 

anuragmunjal

Well-Known Member
#8
Essence of my words were, if you don't cover your future position on expiry day, then price of future would be immaterial, and contract shall be settled as per the closing price of cash determined by exchange on that day!
you are very correct.. but probably you did not pay heed to the query..
he wants to do intraday arbitrage from cash to futures on expiry day..
agreed, futures 'contract shall be settled as per the closing price of cash determined by exchange on that day'...
pls tell me how he would settle his cash position??
 

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