Money on the street: You could earn Rs 16,000 by betting on Bata futures

Mumbai: Bata India December futures contract is trading at a discount of Rs 16 to its cash market share. ICICI Direct says that traders could earn a neat 3.5%, or Rs 16,000, gross return at the month-end by selling the cash share and simultaneously buying the futures — called a reverse arb in market parlance.

How to Execute

Buy 1 lot of Bata India (1,000 shares) December futures at Rs 4.57 lakh and sell 1,000 shares from demat holding at Rs 4.73 lakh. Since the price of futures and spot converge at expiry, the difference of Rs 16,000 is pocketed by the trader playing the reverse arb.

Rationale

Whenever futures are trading at a substantial discount to spot, a reverse arbitrage opportunity arises. Minimum one lot of the futures is bought and delivery of the same number of shares is sold in cash to lock in the price difference.