Please suggest deficiencies or improvements

I have read the arbitrage opportunities section on varsity and found it to be exactly what i am looking at. I request you to please suggest if i am missing something or if this can be improved to make for higher returns. Let me assume that capital is not a constraint (Though it is!). I will list the top 10 stocks in terms of market cap. Then I will filter them to see which are closer to their 52 week lows or so called monthly support level (I need to learn this though). This will increase the chance of the stock price moving up closer to the future price. I will buy the stock and sell the near or mid or far month futures that gives the maximum return (and will also reduce the costs which are very high). In case it remains static or increases slightly, I will gain from the decline in futures premium and that seems to be good enough to fetch 12% per annum. I do not see any risk at all in this. Please let me know if I am missing something or if this can be improved further. Thanks in advance for any help from seasoned players.

I have done a calculation for reliance based on today’s close prices. Below is the results. The annual returns are way below the FD interest rates.

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Both are not the same thing. Though buying at support with proper stoploss is sound, buying at 52 week low is definitely a bad idea. Never try to catch a falling knife. If a stock’s price is falling, it is falling due to a reason. Until that clears up,you stay away from that stock. It may tumble down even more.

And the arbitrage you are talking about has nothing to do with a stock’s technicals or its price. It’s more about the discrepancy in its Futures’s premium. And that discrepancy has to be significant in order for you to beat Risk-free Interest rate gains post brokerage and other charges. As the post by @ZW2768 shows, you won’t earn much. Your money will fetch better returns by sitting in a SBI saviings account earning 3.5% interest. Or buy G-Secs.

There’s nothing in the stock market which can be taken for granted. Technical Analysis is a science but it does work sometimes and sometimes it don’t. Similarly all stocks are different so are their fundamentals and so are the emotions of the people invested in them. Even support/resistant work differently for different kinds of stocks in different kind of market sentiments. The said 52-week low also works differently for different kind of stocks. If you are unfortunate and get into PNB/PC jewellers/Idea/YesBank thinking it too be near 52-week low then you could still loose 50-90% of your money.

In stock market Reading something is altogether diffident than applying the same in the real market where things have not yet unfolded. Please watch real-time chart of various stocks across various groups and try to implement and experiment what you have learnt.

Thanks a lot and sorry for the delayed reply. I did NOT say that such 12% pa is available everyday in every stock. I have seen the following link https://www.moneycontrol.com/stocks/marketstats/arbitrage/futures-spot-near-2.html. There are a few large cap companies that are giving about 1% return.

Thank you. My list of companies will be in the top 10-15 in terms of market cap and I think none of the stocks you mentioned are in that category.

Saw the link. It’s quite useful. I have done the calculation for top 2 in terms of return they would have: Idea and Castrolind.
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Castrol industries looks promising but the problem is at the expiry. This company will not have futures contract from February and I doubt the liquidity on the expiry. Low liquidity might force you to settle far from spot on expiry or you might have to check if you don’t square off - maybe you would end up paying STT on futures as well which might wipe out the profits.

Anyhow, if you see an opportunity where the return is above the risk-free return, please ask yourself why this opportunity is not taken by big funds. Normally, it’s easy to build a simple bot to identify them and take positions. It would be worth tracking these opportunities for first two months and check what happens on expiry.

Hi and thanks for the time and lucid explanation. I think they are done by one category of mutual funds. But as you said the issue of liquidity will wipe out all our profits if any. I am giving up.

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@anugnani did you had chance to track them on expiry?

No. I think there is no other go than learning TA and strict money management for me. As you said if something so simple is possible, then all of us should be making 12% pa against the 5-6% in bank FDs! Thanks.