Traders earn 8% spread on Shriram play

Mumbai: Arbitrageurs are having a field day on the Shriram Transport Finance counter, whose near-month futures contract is trading at a 7.69 per cent discount to the cash share.

Those having a minimum of 600 shares are selling these in cash and simultaneously buying the May futures contract (1 lot equals 600 shares), locking in a monthly spread of Rs 57.15 apiece. This is known as reverse arbitrage.

Amit Gupta, derivatives head, ICICI Securities, has recommended the “reverse arb” as “no dividend” is expected this month. He suggests the trade should be done at Rs 52 differential.


The last traded price of the share was Rs 742.7, while the May contract traded at Rs 685.55 a share Friday.

At expiry on May 28, the prices will converge enabling Rs 57.15 gain apiece. The reverse arb banks on the spread narrowing to zero.

Assume the share closes at Rs 700 at expiry. The gain from the cash share sold earlier is Rs 42.7 while the futures’ gain is Rs 14.45. The same happens if the share expires higher.