/Look, how smart investors are making money on futures-spot mispricing
FinanceDecember 1, 2020

Look, how smart investors are making money on futures-spot mispricing

Termed reverse arbitrage, the trades exploit spot-futures mispricing due to supply-demand factors like the recent MSCI rebalancing-induced heavy cash buying, or corporate actions that lead to heavy futures selling due to anticipated fall in cash market shares.

Synopsis

Normally, equity futures trade at a premium to the underlying spot price — called cash and carry arbitrage. That is because the futures price equals spot price plus cost of carry, which is nothing but the interest rate to fund the purchase of shares minus dividend earned.

Mumbai: High net worth individuals (HNIs), ultra-HNIs and even informed retail investors have lapped up trades that offer annualised returns of between 15 per cent and 54 per cent by buying futures contracts and simultaneously selling underlying shares of Kotak Mahindra Bank, MRF, Bajaj Finance and Shriram Transport Finance Company that have seen heavy cash-based buying recently due to MSCI inflows running into billions of dollars.Termed reverse

BY

ET Bureau

5 mins read, Last Updated:

Share This Article

  • GIFT ARTICLE
  • FONT SIZE

    AbcSmall

    AbcMedium

    AbcLarge

  • SAVE
  • COMMENT

Sign in to read the full article

You’ve got this Prime Story as a Free Gift

Already a Member?

Why ?

  • Sharp Insight-rich, Indepth stories across 20+ sectors

  • Access the exclusive Economic Times stories, Editorial and Expert opinion

  • Clean experience with
    Minimal Ads

  • Comment & Engage with ET Prime community

  • Exclusive invites to Virtual Events with Industry Leaders

  • A trusted team of Journalists & Analysts who can best filter signal from noise

Let’s block ads! (Why?)

Personal Finance News-Wealth-Economic Times

TAGS:

Related posts