Futures Arbitrage - Definition
A combination of a long position in an asset such as a stock or commodity, and a short position in the underlying futures. This arbitrage strategy seeks to exploit pricing inefficiencies for the same asset in the cash (or spot) and futures markets, in order to make riskless profits. The arbitrageur would typically seek to "carry" the asset until the expiration date of the futures contract, at which point it would be delivered against the futures contract. Therefore, this strategy is only viable if the cash inflow from the short futures position exceeds the acquisition cost and carrying costs on the long asset position.
Here, i m taking position on Mahindra and Mahindra
spot price - 941.25/-Rs.
Future price - 958.20/-Rs.
Lot size - 500.
Buying 500 equity shares 941.25 x 500 = 470,625/- Rs
and Selling Future 1 lot 958.20 x 500 x 11.01% = 52,750/- Rs
note : here margin for M&M future is 11.01% , that why we have multipled by 11.01% with future price and lot size.
inflow - 52,750/- Rs
outflow - 470,625/- Rs
total out flow - 417876/- Rs
profit - 8500/-Rs
time period 2 months
%age profit - 2.033%
Satutory warning:-
This date is date on 1st Jan 2013, and should apply this at your own risk.
If you need my assistance or more tips for arbitrage opportunity feel free to contact me.
