Hi all,
Cash-Future arbitrages seem lucrative to me.
Strategy in Short: When there is significant price difference in prices of future and stock of same stock, buy stocks and short futures in equal amount. At expiry when spot=future, exit both positions. Difference is profit.
Significant difference means more than sum of risk free interest rates and transaction costs.
This means guaranteed profit.
Known Limitations:
- high capital requirement, transaction costs
- limited opportunities
Are there any practical difficulties in this strategy except those listed?
If not why most of traders don't use this strategy?
Cash-Future arbitrages seem lucrative to me.
Strategy in Short: When there is significant price difference in prices of future and stock of same stock, buy stocks and short futures in equal amount. At expiry when spot=future, exit both positions. Difference is profit.
Significant difference means more than sum of risk free interest rates and transaction costs.
This means guaranteed profit.
Known Limitations:
- high capital requirement, transaction costs
- limited opportunities
Are there any practical difficulties in this strategy except those listed?
If not why most of traders don't use this strategy?