Share Market Update: Delivery holders of these 5 stocks can get assured returns in the December series

If you hold these 5 shares, initiating the below-mentioned trades can give you assured return in the December series.

Dec 07, 2018 02:12 IST India Infoline News Service

Arbitrage: Arbitrage is the process of simultaneous buy and sale of shares in order to profit from the difference in the price of underlying assets. It is the process of exploiting risk-free return which arises due to price differences. Arbitrage opportunity exists because of market inefficiencies.

What is Reverse cash and carry arbitrage?
Reverse Cash and Carry arbitrage is a combination of Short position in underlying assets and a long position in an underlying future. Reverse cash and carry arbitrage occurs when the market is in “Backwardation”, which means the future prices of an underlying asset are lower than the current spot price. To initiate reverse cash and carry arbitrage, the difference between spot price and future price should be reasonably high enough to cover transaction cost, financing costs. As expiration date approaches nearby, prices of spot and future converge and liquidation of position can be done at that time.
In order to exploit the risk-free return, the arbitrageur/ trader will have to carry the long positions in the future contract until the expiration date of the future contract. 

Who can do Reverse cash and carry arbitrage?
Reverse cash and carry arbitrage strategy can only be done by the delivery holders of the stocks. So anyone who holds the stock positions in their demat account in excess of the lot size available in the futures market can easily initiate the strategy and earn risk-free returns on their delivery positions.

What to Do?
Sell the delivery holdings in cash market in equivalence to the lot size of the future market and buy the same quantity in the futures market at the same time. Hold on to the positions till the future contract expires on December 27, 2018.

Following is the list of stocks in which Reverse cash and carry arbitrage opportunity is available:

Underline Spot Price Futures Price Basis Basis(%) Action Riskfree Profit Hold till expiry
NBCC 53.05 51.85 (1.20) (2.3) Sell cash and Buy future 2.30% 27-Dec-18
JETAIRWAYS 277.70 272.70 (5.00) (1.8) Sell cash and Buy future 1.80% 27-Dec-18
COALINDIA 240.60 237.30 (3.30) (1.4) Sell cash and Buy future 1.40% 27-Dec-18
BEL 81.80 80.70 (1.10) (1.3) Sell cash and Buy future 1.30% 27-Dec-18
MUTHOOTFIN 420.65 416.30 (4.35) (1.0) Sell cash and Buy future 1.00% 27-Dec-18

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