Safe trading - Arbitrage

#1
Date:17.04.21

In Banks highest rate of is 7.40 % p.a. in HDFC Bank. That works out monthly 0.62%.

A SAFE monthly return higher than this is always welcome.

In stocks and its futures prices sometimes there will be difference which will give us opportunity for earning safe income.
This difference will wipeout on expiry day, future price and spot price will be same on expiry day of the Futures contract.
When there is positive difference, buy in equity, sell in futures market, same stock, to pocket this difference, this is called Arbitrage.

Go to this weblink: https://www.moneycontrol.com/stocks/fno/marketstats/arbitrage/futures-spot-near.html?classic=true

Here you will find arbitrage opportunities listed.
On 16.04.21 I can find ZEEL, spot price is Rs 193.95 and its near month(April expiry) futures price is Rs 197.50. There is difference of Rs 3.55. Lot size of ZEEL is 3000.

Hence, Sell ZEEL futures 3000 @ 197.50 = 5,92,500 and buy ZEEL 3000 shares at spot price @ 193.95 = 5,81,850. On expiry day there will be gain of 5,92,500 - 5,81,850 = Rs.10,650.

As you have shorted ZEEL, if price crashes there will be M2M profit. Likewise, if price gains there will be M2M loss. But loss will be compensated by rise in spot price. s. This will be adjusted on expiry day. Till the you have to bear this M2M loss. Keeping extra money (15%) (i.e. 3000 x 193.95 x 15/100 = 87,277.50) in ones trading account to cater to the initial M2M loss is the way. Remember any loss will be compensated on expiry day. M2M profit will be wipedout by spot price loss. So there will be no profit or loss by price fluctuations.
 
#2
So there is no risk at all in this idea? If price moves up ..futures you have shorted will have m2m loss - what if this M2M loss is greater than potential expiry day gain of Rs. 10,650?
 
#5
Delivery investment is around Rs 23.5 lakhs.
Another 3-4 lakhs required for F&O and MTM margin.

So, the total investment required is at least Rs 25 lakhs. At 6.0 % p.a., (0.5% per month), one should earn at least Rs 12,500 per month after all transaction costs to match FD returns.
 

Verde

Well-Known Member
#8
So I think you are saying that after all the charges - there is not much profit correct?
Even a vegetable vendor sitting on the pavement makes more.

will end up negative more or less. Run a simulation for a month and then enter those on brokerage calculator - you will know what we are referring to over here.

Respectfully
Yes, it will end in loss.
If arbitrage was so good all banks would have left loans and set up shop in the market. The nearest thing to free money is option selling but when the position goes wrong the adjustment of the strikes has to be mastered.
 
#9
Date:17.04.21

In Banks highest rate of is 7.40 % p.a. in HDFC Bank. That works out monthly 0.62%.

A SAFE monthly return higher than this is always welcome.

In stocks and its futures prices sometimes there will be difference which will give us opportunity for earning safe income.
This difference will wipeout on expiry day, future price and spot price will be same on expiry day of the Futures contract.
When there is positive difference, buy in equity, sell in futures market, same stock, to pocket this difference, this is called Arbitrage.

Go to this weblink: https://www.moneycontrol.com/stocks/fno/marketstats/arbitrage/futures-spot-near.html?classic=true

Here you will find arbitrage opportunities listed.
On 16.04.21 I can find ZEEL, spot price is Rs 193.95 and its near month(April expiry) futures price is Rs 197.50. There is difference of Rs 3.55. Lot size of ZEEL is 3000.

Hence, Sell ZEEL futures 3000 @ 197.50 = 5,92,500 and buy ZEEL 3000 shares at spot price @ 193.95 = 5,81,850. On expiry day there will be gain of 5,92,500 - 5,81,850 = Rs.10,650.

As you have shorted ZEEL, if price crashes there will be M2M profit. Likewise, if price gains there will be M2M loss. But loss will be compensated by rise in spot price. s. This will be adjusted on expiry day. Till the you have to bear this M2M loss. Keeping extra money (15%) (i.e. 3000 x 193.95 x 15/100 = 87,277.50) in ones trading account to cater to the initial M2M loss is the way. Remember any loss will be compensated on expiry day. M2M profit will be wipedout by spot price loss. So there will be no profit or loss by price fluctuations.

on 29.04.21 ZEEL futures settlement closing was 186.55.
I was holding 3000 shares of ZEEL. My short position of ONE LOT (3000) was adjusted with this holding.

So M2M gain for 3000 ZEEL Sh ares was 197.50 - 186.55 = 10.95 x 3000 = 32,850/-.

On my investment of Rs.5,92,500 + 87,277.50 = Rs.6,79,777.50 I gained Rs 32,850/-, ( 4.83% profit)
 

Silentshadow

Well-Known Member
#10
What is it that we are missing over here? how is the pnl being projected as 32,850?




1619764153090.png




on 29.04.21 ZEEL futures settlement closing was 186.55.
I was holding 3000 shares of ZEEL. My short position of ONE LOT (3000) was adjusted with this holding.

So M2M gain for 3000 ZEEL Sh ares was 197.50 - 186.55 = 10.95 x 3000 = 32,850/-.

On my investment of Rs.5,92,500 + 87,277.50 = Rs.6,79,777.50 I gained Rs 32,850/-, ( 4.83% profit)
 

Similar threads

Zerodha – Open Paperless Account

Open online account with Zerodha. Free delivery trading and Max Rs 20 for Intraday, F&O, Currency and Commodity Trading. Intraday High leverage with MIS, CO and BO.

Name:Phone:
Email:City:
State:
Are you a day trader?