{"id":15249,"date":"2021-12-20T17:04:31","date_gmt":"2021-12-20T17:04:31","guid":{"rendered":"https://www.5paisa.com/finschool/?p=15249"},"modified":"2025-03-26T16:22:28","modified_gmt":"2025-03-26T10:52:28","slug":"reverse-cash-and-carry-arbitrage","status":"publish","type":"post","link":"https://www.5paisa.com/finschool/reverse-cash-and-carry-arbitrage/","title":{"rendered":"Reverse Cash And Carry Arbitrage"},"content":{"rendered":"\u003cdiv data-elementor-type=\u0022wp-post\u0022 data-elementor-id=\u002215249\u0022 class=\u0022elementor elementor-15249\u0022\u003e\u003csection class=\u0022elementor-section elementor-top-section elementor-element elementor-element-8ff0589 elementor-section-boxed elementor-section-height-default elementor-section-height-default\u0022 data-id=\u00228ff0589\u0022 data-element_type=\u0022section\u0022\u003e\u003cdiv class=\u0022elementor-container elementor-column-gap-default\u0022\u003e\u003cdiv class=\u0022elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-a86798e\u0022 data-id=\u0022a86798e\u0022 data-element_type=\u0022column\u0022\u003e\u003cdiv class=\u0022elementor-widget-wrap elementor-element-populated\u0022\u003e\u003cdiv class=\u0022elementor-element elementor-element-453880c elementor-widget elementor-widget-text-editor\u0022 data-id=\u0022453880c\u0022 data-element_type=\u0022widget\u0022 data-widget_type=\u0022text-editor.default\u0022\u003e\u003cdiv class=\u0022elementor-widget-container\u0022\u003e\u003cp class=\u0022MsoNormal\u0022\u003e\u003cspan lang=\u0022EN-US\u0022\u003eReverse Cash and Carry arbitrage is a combination of short position in underlying asset (cash) and long position in underlying future. It is initiated when future is trading at a discount as compared to cash market price. In other words, the cash market price is trading higher as compared to future. The arbitrageur/ trader can take position by selling his delivery of stocks in cash and simultaneously buying futures of same underlying assets of equal quantity. A trader must have delivery in that particular stock when there is such an opportunity available in the market.\u003c/span\u003e\u003c/p\u003e\u003cp class=\u0022MsoNormal\u0022\u003e\u003cspan lang=\u0022EN-US\u0022\u003eReverse cash and carry arbitrage occurs when market is in \u0026#8220;Backwardation\u0026#8221;, which means future contracts are trading at a discount to the spot price.\u003c/span\u003e\u003c/p\u003e\u003cp class=\u0022MsoNormal\u0022\u003e\u003cspan lang=\u0022EN-US\u0022\u003eLet’s try to understand with the help example of CEATLTD as on 26th APRIL 2017:\u003c/span\u003e\u003c/p\u003e\u003cp class=\u0022MsoNormal\u0022\u003e\u003cspan lang=\u0022EN-US\u0022\u003eAs we can see in the above illustration from 5paisa terminal there was a price difference between cash market price and May futures price of Rs 60.\u003c/span\u003e\u003c/p\u003e\u003cp class=\u0022MsoNormal\u0022\u003e\u003c!-- [if mso \u0026 !supportInlineShapes \u0026 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border-collapse: collapse; border: initial none initial;\u0022 border=\u00221\u0022 width=\u0022704\u0022 cellspacing=\u00220\u0022 cellpadding=\u00220\u0022\u003e\u003ctbody\u003e\u003ctr\u003e\u003ctd style=\u0022width: 290.15pt; border-width: 1pt; border-color: #dee2e6; padding: 0cm;\u0022 valign=\u0022top\u0022 width=\u0022387\u0022\u003e\u003cp class=\u0022MsoNormal\u0022 style=\u0022margin-bottom: 7.5pt; text-align: justify; line-height: normal;\u0022\u003e\u003cspan style=\u0022font-size: 12.0pt; font-family: \u0027montserratlight\u0027,serif; mso-fareast-font-family: \u0027Times New Roman\u0027; mso-bidi-font-family: \u0027Times New Roman\u0027; color: #3d4051; mso-ansi-language: EN-IN; mso-fareast-language: EN-IN; mso-bidi-language: AR-SA;\u0022\u003eCash market price (as on 26th April 2017) (S)\u003c/span\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd style=\u0022width: 237.4pt; border-top-width: 1pt; border-right-width: 1pt; border-bottom-width: 1pt; border-top-color: #dee2e6; 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style=\u0022margin-bottom: 7.5pt; text-align: justify; line-height: normal;\u0022\u003e\u003cspan style=\u0022font-size: 12.0pt; font-family: \u0027montserratlight\u0027,serif; mso-fareast-font-family: \u0027Times New Roman\u0027; mso-bidi-font-family: \u0027Times New Roman\u0027; color: #3d4051; mso-ansi-language: EN-IN; mso-fareast-language: EN-IN; mso-bidi-language: AR-SA;\u0022\u003eMay Futures (Expiry on 29th May 2017) (F)\u003c/span\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd style=\u0022width: 237.4pt; border-top: none; border-left: none; border-bottom-width: 1pt; border-bottom-color: #dee2e6; border-right-width: 1pt; border-right-color: #dee2e6; padding: 0cm;\u0022 valign=\u0022top\u0022 width=\u0022317\u0022\u003e\u003cp class=\u0022MsoNormal\u0022 style=\u0022margin-bottom: 7.5pt; text-align: justify; line-height: normal;\u0022\u003e\u003cspan style=\u0022font-size: 12.0pt; font-family: \u0027montserratlight\u0027,serif; mso-fareast-font-family: \u0027Times New Roman\u0027; mso-bidi-font-family: \u0027Times New Roman\u0027; color: #3d4051; mso-ansi-language: EN-IN; mso-fareast-language: EN-IN; mso-bidi-language: AR-SA;\u0022\u003eRs 1510\u003c/span\u003e\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd style=\u0022width: 290.15pt; border-right-width: 1pt; border-bottom-width: 1pt; border-left-width: 1pt; border-right-color: #dee2e6; border-bottom-color: #dee2e6; border-left-color: #dee2e6; border-top: none; padding: 0cm;\u0022 valign=\u0022top\u0022 width=\u0022387\u0022\u003e\u003cp class=\u0022MsoNormal\u0022 style=\u0022margin-bottom: 7.5pt; text-align: justify; line-height: normal;\u0022\u003e\u003cspan style=\u0022font-size: 12.0pt; font-family: \u0027montserratlight\u0027,serif; mso-fareast-font-family: \u0027Times New Roman\u0027; mso-bidi-font-family: \u0027Times New Roman\u0027; color: #3d4051; mso-ansi-language: EN-IN; mso-fareast-language: EN-IN; mso-bidi-language: AR-SA;\u0022\u003eContract size\u003c/span\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd style=\u0022width: 237.4pt; border-top: none; border-left: none; border-bottom-width: 1pt; border-bottom-color: #dee2e6; border-right-width: 1pt; border-right-color: #dee2e6; padding: 0cm;\u0022 valign=\u0022top\u0022 width=\u0022317\u0022\u003e\u003cp class=\u0022MsoNormal\u0022 style=\u0022margin-bottom: 7.5pt; text-align: justify; line-height: normal;\u0022\u003e\u003cspan style=\u0022font-size: 12.0pt; font-family: \u0027montserratlight\u0027,serif; mso-fareast-font-family: \u0027Times New Roman\u0027; mso-bidi-font-family: \u0027Times New Roman\u0027; color: #3d4051; mso-ansi-language: EN-IN; mso-fareast-language: EN-IN; mso-bidi-language: AR-SA;\u0022\u003e700\u003c/span\u003e\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd style=\u0022width: 290.15pt; border-right-width: 1pt; border-bottom-width: 1pt; border-left-width: 1pt; border-right-color: #dee2e6; border-bottom-color: #dee2e6; border-left-color: #dee2e6; border-top: none; padding: 0cm;\u0022 valign=\u0022top\u0022 width=\u0022387\u0022\u003e\u003cp class=\u0022MsoNormal\u0022 style=\u0022margin-bottom: 7.5pt; text-align: justify; line-height: normal;\u0022\u003e\u003cspan style=\u0022font-size: 12.0pt; font-family: \u0027montserratlight\u0027,serif; mso-fareast-font-family: \u0027Times New Roman\u0027; mso-bidi-font-family: \u0027Times New Roman\u0027; color: #3d4051; mso-ansi-language: EN-IN; mso-fareast-language: EN-IN; mso-bidi-language: AR-SA;\u0022\u003eRate of Interest\u003c/span\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd style=\u0022width: 237.4pt; border-top: none; border-left: none; border-bottom-width: 1pt; border-bottom-color: #dee2e6; border-right-width: 1pt; border-right-color: #dee2e6; padding: 0cm;\u0022 valign=\u0022top\u0022 width=\u0022317\u0022\u003e\u003cp class=\u0022MsoNormal\u0022 style=\u0022margin-bottom: 7.5pt; text-align: justify; line-height: normal;\u0022\u003e\u003cspan style=\u0022font-size: 12.0pt; font-family: \u0027montserratlight\u0027,serif; mso-fareast-font-family: \u0027Times New Roman\u0027; mso-bidi-font-family: \u0027Times New Roman\u0027; color: #3d4051; mso-ansi-language: EN-IN; mso-fareast-language: EN-IN; mso-bidi-language: AR-SA;\u0022\u003e9% (p.a.)\u003c/span\u003e\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd style=\u0022width: 290.15pt; border-right-width: 1pt; border-bottom-width: 1pt; border-left-width: 1pt; border-right-color: #dee2e6; border-bottom-color: #dee2e6; border-left-color: #dee2e6; border-top: none; padding: 0cm;\u0022 valign=\u0022top\u0022 width=\u0022387\u0022\u003e\u003cp class=\u0022MsoNormal\u0022 style=\u0022margin-bottom: 7.5pt; text-align: justify; line-height: normal;\u0022\u003e\u003cspan style=\u0022font-size: 12.0pt; font-family: \u0027montserratlight\u0027,serif; mso-fareast-font-family: \u0027Times New Roman\u0027; mso-bidi-font-family: \u0027Times New Roman\u0027; color: #3d4051; mso-ansi-language: EN-IN; mso-fareast-language: EN-IN; mso-bidi-language: AR-SA;\u0022\u003eTime to expiry (n)\u003c/span\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd style=\u0022width: 237.4pt; border-top: none; border-left: none; border-bottom-width: 1pt; border-bottom-color: #dee2e6; border-right-width: 1pt; border-right-color: #dee2e6; padding: 0cm;\u0022 valign=\u0022top\u0022 width=\u0022317\u0022\u003e\u003cp class=\u0022MsoNormal\u0022 style=\u0022margin-bottom: 7.5pt; text-align: justify; line-height: normal;\u0022\u003e\u003cspan style=\u0022font-size: 12.0pt; font-family: \u0027montserratlight\u0027,serif; mso-fareast-font-family: \u0027Times New Roman\u0027; mso-bidi-font-family: \u0027Times New Roman\u0027; color: #3d4051; mso-ansi-language: EN-IN; mso-fareast-language: EN-IN; mso-bidi-language: AR-SA;\u0022\u003e29 days\u003c/span\u003e\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd style=\u0022width: 290.15pt; border-right-width: 1pt; border-bottom-width: 1pt; border-left-width: 1pt; border-right-color: #dee2e6; border-bottom-color: #dee2e6; border-left-color: #dee2e6; border-top: none; padding: 0cm;\u0022 valign=\u0022top\u0022 width=\u0022387\u0022\u003e\u003cp class=\u0022MsoNormal\u0022 style=\u0022margin-bottom: 7.5pt; text-align: justify; line-height: normal;\u0022\u003e\u003cspan style=\u0022font-size: 12.0pt; font-family: \u0027montserratlight\u0027,serif; mso-fareast-font-family: \u0027Times New Roman\u0027; mso-bidi-font-family: \u0027Times New Roman\u0027; color: #3d4051; mso-ansi-language: EN-IN; mso-fareast-language: EN-IN; mso-bidi-language: AR-SA;\u0022\u003eAmount received from selling Delivery of CEAT\u003c/span\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd style=\u0022width: 237.4pt; border-top: none; border-left: none; border-bottom-width: 1pt; border-bottom-color: #dee2e6; border-right-width: 1pt; border-right-color: #dee2e6; padding: 0cm;\u0022 valign=\u0022top\u0022 width=\u0022317\u0022\u003e\u003cp class=\u0022MsoNormal\u0022 style=\u0022margin-bottom: 7.5pt; text-align: justify; line-height: normal;\u0022\u003e\u003cspan style=\u0022font-size: 12.0pt; font-family: \u0027montserratlight\u0027,serif; mso-fareast-font-family: \u0027Times New Roman\u0027; mso-bidi-font-family: \u0027Times New Roman\u0027; color: #3d4051; mso-ansi-language: EN-IN; mso-fareast-language: EN-IN; mso-bidi-language: AR-SA;\u0022\u003eRs 10,99,000 (1570*700)\u003c/span\u003e\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd style=\u0022width: 290.15pt; border-right-width: 1pt; border-bottom-width: 1pt; border-left-width: 1pt; border-right-color: #dee2e6; border-bottom-color: #dee2e6; border-left-color: #dee2e6; border-top: none; padding: 0cm;\u0022 valign=\u0022top\u0022 width=\u0022387\u0022\u003e\u003cp class=\u0022MsoNormal\u0022 style=\u0022margin-bottom: 7.5pt; text-align: justify; line-height: normal;\u0022\u003e\u003cspan style=\u0022font-size: 12.0pt; font-family: \u0027montserratlight\u0027,serif; mso-fareast-font-family: \u0027Times New Roman\u0027; mso-bidi-font-family: \u0027Times New Roman\u0027; color: #3d4051; mso-ansi-language: EN-IN; mso-fareast-language: EN-IN; mso-bidi-language: AR-SA;\u0022\u003eMargin required to sell futures\u003c/span\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd style=\u0022width: 237.4pt; border-top: none; border-left: none; border-bottom-width: 1pt; border-bottom-color: #dee2e6; border-right-width: 1pt; border-right-color: #dee2e6; padding: 0cm;\u0022 valign=\u0022top\u0022 width=\u0022317\u0022\u003e\u003cp class=\u0022MsoNormal\u0022 style=\u0022margin-bottom: 7.5pt; text-align: justify; line-height: normal;\u0022\u003e\u003cspan style=\u0022font-size: 12.0pt; font-family: \u0027montserratlight\u0027,serif; mso-fareast-font-family: \u0027Times New Roman\u0027; mso-bidi-font-family: \u0027Times New Roman\u0027; color: #3d4051; mso-ansi-language: EN-IN; mso-fareast-language: EN-IN; mso-bidi-language: AR-SA;\u0022\u003eRs 1,37,595\u003c/span\u003e\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd style=\u0022width: 290.15pt; border-right-width: 1pt; border-bottom-width: 1pt; border-left-width: 1pt; border-right-color: #dee2e6; border-bottom-color: #dee2e6; border-left-color: #dee2e6; border-top: none; padding: 0cm;\u0022 valign=\u0022top\u0022 width=\u0022387\u0022\u003e\u003cp class=\u0022MsoNormal\u0022 style=\u0022margin-bottom: 7.5pt; text-align: justify; line-height: normal;\u0022\u003e\u003cspan style=\u0022font-size: 12.0pt; font-family: \u0027montserratlight\u0027,serif; mso-fareast-font-family: \u0027Times New Roman\u0027; mso-bidi-font-family: \u0027Times New Roman\u0027; color: #3d4051; mso-ansi-language: EN-IN; mso-fareast-language: EN-IN; mso-bidi-language: AR-SA;\u0022\u003eFree cash available\u003c/span\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd style=\u0022width: 237.4pt; border-top: none; border-left: none; border-bottom-width: 1pt; border-bottom-color: #dee2e6; border-right-width: 1pt; border-right-color: #dee2e6; padding: 0cm;\u0022 valign=\u0022top\u0022 width=\u0022317\u0022\u003e\u003cp class=\u0022MsoNormal\u0022 style=\u0022margin-bottom: 7.5pt; text-align: justify; line-height: normal;\u0022\u003e\u003cspan style=\u0022font-size: 12.0pt; font-family: \u0027montserratlight\u0027,serif; mso-fareast-font-family: \u0027Times New Roman\u0027; mso-bidi-font-family: \u0027Times New Roman\u0027; color: #3d4051; mso-ansi-language: EN-IN; mso-fareast-language: EN-IN; mso-bidi-language: AR-SA;\u0022\u003eRs 9,61,405\u003c/span\u003e\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd style=\u0022width: 290.15pt; border-right-width: 1pt; border-bottom-width: 1pt; border-left-width: 1pt; border-right-color: #dee2e6; border-bottom-color: #dee2e6; border-left-color: #dee2e6; border-top: none; padding: 0cm;\u0022 valign=\u0022top\u0022 width=\u0022387\u0022\u003e\u003cp class=\u0022MsoNormal\u0022 style=\u0022margin-bottom: 7.5pt; text-align: justify; line-height: normal;\u0022\u003e\u003cspan style=\u0022font-size: 12.0pt; font-family: \u0027montserratlight\u0027,serif; mso-fareast-font-family: \u0027Times New Roman\u0027; mso-bidi-font-family: \u0027Times New Roman\u0027; color: #3d4051; mso-ansi-language: EN-IN; mso-fareast-language: EN-IN; mso-bidi-language: AR-SA;\u0022\u003eFair value is measured by the formula\u003c/span\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd style=\u0022width: 237.4pt; border-top: none; border-left: none; border-bottom-width: 1pt; border-bottom-color: #dee2e6; border-right-width: 1pt; border-right-color: #dee2e6; padding: 0cm;\u0022 valign=\u0022top\u0022 width=\u0022317\u0022\u003e\u003cp class=\u0022MsoNormal\u0022 style=\u0022margin-bottom: 7.5pt; text-align: justify; line-height: normal;\u0022\u003e\u003cspan style=\u0022font-size: 12.0pt; font-family: \u0027montserratlight\u0027,serif; mso-fareast-font-family: \u0027Times New Roman\u0027; mso-bidi-font-family: \u0027Times New Roman\u0027; color: #3d4051; mso-ansi-language: EN-IN; mso-fareast-language: EN-IN; mso-bidi-language: AR-SA;\u0022\u003eS= F/(1+R)^n\u003c/span\u003e\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd style=\u0022width: 290.15pt; border-right-width: 1pt; border-bottom-width: 1pt; border-left-width: 1pt; border-right-color: #dee2e6; border-bottom-color: #dee2e6; border-left-color: #dee2e6; border-top: none; padding: 0cm;\u0022 valign=\u0022top\u0022 width=\u0022387\u0022\u003e\u003cp class=\u0022MsoNormal\u0022 style=\u0022margin-bottom: 7.5pt; text-align: justify; line-height: normal;\u0022\u003e\u003cspan style=\u0022font-size: 12.0pt; font-family: \u0027montserratlight\u0027,serif; mso-fareast-font-family: \u0027Times New Roman\u0027; mso-bidi-font-family: \u0027Times New Roman\u0027; color: #3d4051; mso-ansi-language: EN-IN; mso-fareast-language: EN-IN; mso-bidi-language: AR-SA;\u0022\u003eLending rate\u003c/span\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd style=\u0022width: 237.4pt; border-top: none; border-left: none; border-bottom-width: 1pt; border-bottom-color: #dee2e6; border-right-width: 1pt; border-right-color: #dee2e6; padding: 0cm;\u0022 valign=\u0022top\u0022 width=\u0022317\u0022\u003e\u003cp class=\u0022MsoNormal\u0022 style=\u0022margin-bottom: 7.5pt; text-align: justify; line-height: normal;\u0022\u003e\u003cspan style=\u0022font-size: 12.0pt; font-family: \u0027montserratlight\u0027,serif; mso-fareast-font-family: \u0027Times New Roman\u0027; mso-bidi-font-family: \u0027Times New Roman\u0027; color: #3d4051; mso-ansi-language: EN-IN; mso-fareast-language: EN-IN; mso-bidi-language: AR-SA;\u0022\u003e0.72%\u003c/span\u003e\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd style=\u0022width: 290.15pt; border-right-width: 1pt; border-bottom-width: 1pt; border-left-width: 1pt; border-right-color: #dee2e6; border-bottom-color: #dee2e6; border-left-color: #dee2e6; border-top: none; padding: 0cm;\u0022 valign=\u0022top\u0022 width=\u0022387\u0022\u003e\u003cp class=\u0022MsoNormal\u0022 style=\u0022margin-bottom: 7.5pt; text-align: justify; line-height: normal;\u0022\u003e\u003cspan style=\u0022font-size: 12.0pt; font-family: \u0027montserratlight\u0027,serif; mso-fareast-font-family: \u0027Times New Roman\u0027; mso-bidi-font-family: \u0027Times New Roman\u0027; color: #3d4051; mso-ansi-language: EN-IN; mso-fareast-language: EN-IN; mso-bidi-language: AR-SA;\u0022\u003eBasis\u003c/span\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd style=\u0022width: 237.4pt; border-top: none; border-left: none; border-bottom-width: 1pt; border-bottom-color: #dee2e6; border-right-width: 1pt; border-right-color: #dee2e6; padding: 0cm;\u0022 valign=\u0022top\u0022 width=\u0022317\u0022\u003e\u003cp class=\u0022MsoNormal\u0022 style=\u0022margin-bottom: 7.5pt; text-align: justify; line-height: normal;\u0022\u003e\u003cspan style=\u0022font-size: 12.0pt; font-family: \u0027montserratlight\u0027,serif; mso-fareast-font-family: \u0027Times New Roman\u0027; mso-bidi-font-family: \u0027Times New Roman\u0027; color: #3d4051; mso-ansi-language: EN-IN; mso-fareast-language: EN-IN; mso-bidi-language: AR-SA;\u0022\u003eSpot price-Future price\u003c/span\u003e\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003c/tbody\u003e\u003c/table\u003e\u003cp class=\u0022MsoNormal\u0022\u003e\u003cspan lang=\u0022EN-US\u0022\u003eGain from amount lend is Rs 6,874.71 (9,61,405*(0.09^(29/365)))\u003c/span\u003e\u003c/p\u003e\u003cp class=\u0022MsoNormal\u0022\u003e\u003cspan lang=\u0022EN-US\u0022\u003eS= 1510/(1+0.09)^(29/365)\u003c/span\u003e\u003c/p\u003e\u003cp class=\u0022MsoNormal\u0022\u003e\u003cspan lang=\u0022EN-US\u0022\u003eFair Value of spot price (S)= 1500\u003c/span\u003e\u003c/p\u003e\u003cp class=\u0022MsoNormal\u0022\u003e\u003cspan lang=\u0022EN-US\u0022\u003eCurrent spot price= 1570\u003c/span\u003e\u003c/p\u003e\u003cp class=\u0022MsoNormal\u0022\u003e\u003cspan lang=\u0022EN-US\u0022\u003eHence, we can see that there is an arbitrage opportunity.\u003c/span\u003e\u003c/p\u003e\u003cp class=\u0022MsoNormal\u0022\u003e\u003cspan lang=\u0022EN-US\u0022\u003eRisk free Arbitrage=Rs 70 (1570-1500)\u003c/span\u003e\u003c/p\u003e\u003cp class=\u0022MsoNormal\u0022\u003e\u003cspan lang=\u0022EN-US\u0022\u003eTo take advantage from this mispricing, trader/arbitrageur will buy futures at Rs 1510 and sell CEATLTD in cash market at Rs 1570. This would result in gross arbitrage profit of Rs 42,000 (60*700). And income received from lended amount would be Rs 6874.71, so Net arbitrage profit would be Rs 48,874.71.\u003c/span\u003e\u003c/p\u003e\u003cp class=\u0022MsoNormal\u0022\u003e\u003cspan style=\u0022color: #000080;\u0022\u003e\u003cstrong\u003e\u003cspan lang=\u0022EN-US\u0022\u003eScenario analysis:\u003c/span\u003e\u003c/strong\u003e\u003c/span\u003e\u003c/p\u003e\u003cp\u003e\u003cspan lang=\u0022EN-US\u0022\u003e\u003cstrong\u003eCase 1:\u003c/strong\u003e CEATLTD rises to 1620, at expiry\u003c/span\u003e\u003c/p\u003e\u003cp\u003e\u003cspan lang=\u0022EN-US\u0022\u003eLoss on underlying (cash) = (1620-1570)*700= (Rs 35,000)\u003c/span\u003e\u003c/p\u003e\u003cp\u003e\u003cspan lang=\u0022EN-US\u0022\u003eProfit on futures = (1620-1510)*700= Rs 77,000\u003c/span\u003e\u003c/p\u003e\u003cp\u003e\u003cspan lang=\u0022EN-US\u0022\u003eGross Gain on Arbitrage= Rs 42,000\u003c/span\u003e\u003c/p\u003e\u003cp\u003e\u003cspan lang=\u0022EN-US\u0022\u003eInflow from lending: Rs 6874.71\u003c/span\u003e\u003c/p\u003e\u003cp\u003e\u003cspan lang=\u0022EN-US\u0022\u003eNet gain from arbitrage: Rs 48,874.71\u003c/span\u003e\u003c/p\u003e\u003cp\u003e\u003cspan lang=\u0022EN-US\u0022\u003e\u003cstrong\u003eCase 2:\u003c/strong\u003e CEATLTD falls to 1450, at expiry\u003c/span\u003e\u003c/p\u003e\u003cp\u003e\u003cspan lang=\u0022EN-US\u0022\u003eProfit on underlying (cash) = (1570-1450)*700= Rs 84,000\u003c/span\u003e\u003c/p\u003e\u003cp\u003e\u003cspan lang=\u0022EN-US\u0022\u003eLoss on Futures= (1510-1450)*700= (Rs 42,000)\u003c/span\u003e\u003c/p\u003e\u003cp\u003e\u003cspan lang=\u0022EN-US\u0022\u003eGross Gain on Arbitrage= Rs 42,000\u003c/span\u003e\u003c/p\u003e\u003cp\u003e\u003cspan lang=\u0022EN-US\u0022\u003eInflow from lending: Rs 6874.71\u003c/span\u003e\u003c/p\u003e\u003cp\u003e\u003cspan lang=\u0022EN-US\u0022\u003eNet gain from arbitrage: Rs 48,874.71\u003c/span\u003e\u003c/p\u003e\u003cp class=\u0022MsoNormal\u0022\u003e\u003cspan lang=\u0022EN-US\u0022\u003eTo round up, in any reverse cash and carry arbitrage, the moment you trigger this arbitrage, your profit is fixed depending upon the arbitrage opportunity. This is also called risk free arbitrage because your profit is secured irrespective of underlying price movement.\u003c/span\u003e\u003c/p\u003e\u003cp class=\u0022MsoNormal\u0022\u003e\u003cspan lang=\u0022EN-US\u0022\u003eWhenever future price of an underlying asset are higher than the current spot price, a cash and carry arbitrage opportunity arises.\u003c/span\u003e\u003c/p\u003e\u003c/div\u003e\u003c/div\u003e\u003c/div\u003e\u003c/div\u003e\u003c/div\u003e\u003c/section\u003e\u003c/div\u003e","protected":false},"excerpt":{"rendered":"\u003cp\u003eReverse Cash and Carry arbitrage is a combination of short position in underlying asset (cash) and long position in underlying future. It is initiated when future is trading at a discount as compared to cash market price. In other words, the cash market price is trading higher as compared to future. The arbitrageur/ trader can … \u003ca title=\u0022Reverse Cash And Carry Arbitrage\u0022 class=\u0022read-more\u0022 href=\u0022https://www.5paisa.com/gujarati/finschool/reverse-cash-and-carry-arbitrage/\u0022 aria-label=\u0022Read more about Reverse Cash And Carry Arbitrage\u0022\u003eRead more\u003c/a\u003e\u003c/p\u003e","protected":false},"author":1,"featured_media":15259,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18,73],"tags":[],"class_list":["post-15249","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blogs","category-know-everything-about-starting-trading"],"acf":[],"_links":{"self":[{"href":"https://www.5paisa.com/finschool/wp-json/wp/v2/posts/15249","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https://www.5paisa.com/finschool/wp-json/wp/v2/posts"}],"about":[{"href":"https://www.5paisa.com/finschool/wp-json/wp/v2/types/post"}],"author":[{"embeddable":true,"href":"https://www.5paisa.com/finschool/wp-json/wp/v2/users/1"}],"replies":[{"embeddable":true,"href":"https://www.5paisa.com/finschool/wp-json/wp/v2/comments?post=15249"}],"version-history":[{"count":11,"href":"https://www.5paisa.com/finschool/wp-json/wp/v2/posts/15249/revisions"}],"predecessor-version":[{"id":68443,"href":"https://www.5paisa.com/finschool/wp-json/wp/v2/posts/15249/revisions/68443"}],"wp:featuredmedia":[{"embeddable":true,"href":"https://www.5paisa.com/finschool/wp-json/wp/v2/media/15259"}],"wp:attachment":[{"href":"https://www.5paisa.com/finschool/wp-json/wp/v2/media?parent=15249"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https://www.5paisa.com/finschool/wp-json/wp/v2/categories?post=15249"},{"taxonomy":"post_tag","embeddable":true,"href":"https://www.5paisa.com/finschool/wp-json/wp/v2/tags?post=15249"}],"curies":[{"name":"wp","href":"https://api.w.org/{rel}","templated":true}]}}