Spot and futures

Hey,No you cant do that...the settling system in spot market is T+2 settlement that is any transaction made on a particular trading day would be settled on the 2'nd day following the trading day. So those who bought shares should deposit cash and those who sold their shares should give delivery of the same on the settlement day.

 

So if you sell a share today without actually holding one...you will have to buy one and deliver the same at the end of T+2 day..otherwise it will be considered as a default.

Consider the following stuation. If theoritical price of 2 month future is 200 rs. But actul price of future is 190 rs. Then there is arbitrage opportunith and i will buy futures. For this i will have to sell in spot (i don't have stock in spot market). So when will i sell in spot? Or at what price i sell in spot now or 2 months letter?

FIRST OF ALL LET ME CLEAR IT THAT NO ONE CAN  SELL SHARES IN CASH SEGMENT (SPOT) IF HE DOESNT HAVE SUCH SHARES ....IT MEANS IF U DONT HAVE SHARES AND U SELL THEM IN SPOT THEN U HAVE TO BUY SUCH SHARES IN THE SAME DAY AND IF U DONT BUY THEM SAME DAY THEN THESE WILL BE AUCTIONED AFTER T+2 DAYS....ITS CALLED SHORT SELLING MEANS U DONT HAVE SHARES AND U R SELLING IT...

 

NOW AS FAR AS UR STRATEGY IS CONCERNED ......IF SPOT IS RS 190 AND FUTURE IS RS 200 THEN MY DEAR STRATEGY WILL BE

1. BUY SPOT 

2. SELL FUTURE

Y SO ?

BECAUSE ALL FUTURE CONTRACTS ARE EXERCISED  AT  SPOT PRICE......

IT MEANS AT THE TIME OF EXPIRY THE FUTURE WILL BE COME DOWN TO SPOT RATE....

THANK YOU....

 

 

 

M agree with ramesh sir

Sorry ramesh ji i didn't got this. Why future are excercised at spot price? If do a contract to buy shares at 190 in future then i will buy them at 190 only.

dear himanshu ,

 

first of all u have to understand what is exercising in future ?

if u have ever seen future contract of any share then u must have seen that the most of the time there is difference between the spot price and future which due to carrying cost ....if u have studied the derivatives chapter then u must have known the formula of calculating the future as we add the carrying cost to the spot price of the share .....more the time of future contract greater the cost.....so when the future contract expires this carrying cost automaticaly becomes zero .....now its abt exercise futures are exercised at spot price let me explain u with an example.......

le suppose the may future of tata steel is trading at rs. 350 on the last date i.e expiry date....however the spot price is at rs 345......so if u had bought a future contract of tata steel @ 340 and as per the future price u r getting a profit of  rs 10 per share.....but if u dont sell the future even at the last date then the exchange will exercise it and in that case u will get only rs 5 instead rs 10....as spot is at rs 345......

this is called exercising ......

this example was just to explain u otherwise there is no such a difference on the last date between the spot and future....

i hope u will understand it.....

thank u

cma rcs