After some of the limitations pointed out by some of you, especially the additional margin that I would want for selling futures, yes I too agree that it may ultimately nullify the gain.
But what works for me is if there is a correction of 10 to 15 percent, I close the futures and just hold on the niftybees. It’s as good as I entered bees at lower level. Then I sell higher level calls till it comes ITM. I know this is irrelevant for the strategy I have mentioned because here I am taking equity exposure. It’s no longer risk free.
I have already considered the tax on 300 points separately in Point number 1. I have taken it separately and you have nullified the effect and then taken it.
My calculations were after nullifying the effect.
Also you have missed out the dividend yield on nifty which gets reflected in the returns of niftybees. Please check the calculation again. But if I have gone wrong feel free to correct me again.
This has got nothing to do with option trading. Option trading decisions are irrelevant to whatever I have discussed here. Option trades remain same whether I pledge debt funds or I pledge niftybees.
Here I am just trying to cover the non cash portion may be try generating additional return.
It’s still very much the same. It will continue for as long as it stops working.
Also this strategy helps me in just closing futures when markets take a dip. And sell it again at higher level. I do not have to buy and sell bees everytime. But as mentioned in the original post, it may not work for other option traders.
A company would be a separate entity it won’t work until you trade on the name of the company and trading on behalf of a company is quite a headache at least for that in India.
So probably not quite how it would work
Yup … This is timing the market and nobody can do it perfectly and consistently.
I don’t think it is a matter of before / after. I just showed that 20% short term / long term tax arbitrage that you are seeking is getting adjusted in the cost (extra premium) you are paying to maintain that perfect hedge between FUTURE and NIFTYBEES. Frankly, even maintaining the perfect hedge is an upheaval task and every quarter you may have to sell NIFTYBEES or buy more to maintain the lots of NIFTY FUTURE that you rollover. But forget the nitty gritty - the premium itself has a clear nullifying effect to the trade. I am not sure how else I can put it.
Ok. But I am pretty sure … the cost of carrying the hedge with NIFTY FUTURES will also reflect the same in premium.
I think the thought behind this is pretty clear and straightforward - except for some wordings (instead of capital loss say it as business loss). Let me put it in the following way and @Jason_Castelino - it will be great if you can point out what is the issue with it?
Person A does F&O trading and has 10 lakhs profit for the FY in his personal account. In the same year Person A starts a company and gives bootstrap money to the tune of 10 lakhs to this company. That company pursues one of his hobby and has a clear objective - yoga centre for that matter. The company isn’t able to scale and closes shop within 6 months burning 10 lakhs. To my view Person A should be able to adjust F&O business income (non-speculative in nature) with the non-speculative business that he dreamed of starting - and see if his trail run is successful or not. What is wrong with that and which law is being broken - please elaborate?
After all money should give you freedom of time and trials on things you wish to pursue. Isn’t it?
Not really. I am not paying any extra premium to maintain the hedge. In fact I am earning premium and this is also shown in the calculation.
I buy it once and that stay forever. No adjustment with niftybees is required.
Since niftybees tracks nifty TRI there is outperformance by niftybees to nifty spot to the extend of dividend yield on nifty.
This is the dividend adjustment that I was talking about. All of this is not gonna give me any additional gain mainly because arbitrage can’t exist.
My only gain is tax savings on capital appreciation and this matches with my original calculation. If you still do not agree, please show the calculation in a tabular form like I have given.
I somehow feel you are still not getting my point.
Only thing I missed out was the margin required to carry futures. So I should have added my opportunity cost of that margin.
Please quantify the amount and show me the return as per your calculation.
This is basic. Individual and company are two separate entities. I hope you know income tax is assesse based and each assesse is identified by PAN.
Loss from one cannot be set off against other.
Yes. You can carry forward losses. And do what ? For how long ?
It’s on the same PAN. The bootstrap money I gave for starting the company - is treated as what for accounting purpose (in my personal account) if I never get it back? The company closed. It’s given in my personal capacity to the company which closed within 6 months in the same FY. And FnO income is also in personal PAN. They are both business income and business loss from non-speculative business on individual PAN. Isn’t it? What’s wrong in setting them off?
I am adjusting it in the same year against gains in personal pan via FnO because I would like to treat the bootstrap money I gave as business loss in personal capacity. Can’t I?
I can’t. I am saying that the market pricing of the premium in FUTURE will adjust for any arbitrage opportunity (in tax or otherwise) - if at all it exists. Anyhow, let’s agree to disagree on this one.
You will be given shares in return. It will be accounted as investments.
Now shares value is 0.
There is capital loss. This loss can be set off against your STCG if any. Not against your business profits.
Even if it was business loss, it’s not as simple as you have made it sound.
First you have to incorporate a company. Do all the compliances. Then close it down in 6 months. Again a lot of compliances involved.
I would be very happy to do this work for you. How many companies do you want me to incorporate and close it down??? I will charge you 1lakh per company to incorporate and close it within 6 months.
As already mentioned, you will get shares in return.
Nah it won’t in this case. If it had, then a person whose income in below basic exemption limit can do reverse.
The futures premium theoretically has to be spot price plus risk free return minus dividend. Even if there is a small change then somebody will gain out of this. It’s just that my additional margin on futures is bringing down my return percentage. Otherwise I am convinced that it will still work.
On FnO. Ok. I see your point. Forget the company. What about " Udyam Registration Process" - Zero Cost, No Fee and Free Registration and I become an individual business in personal capacity in 1 day. I get a GST in 3 days (proprietor) and put up a Tea Store and pay 10 lakhs in expense. There is no question of investment or equity exchange. It’s all in personal capacity. Won’t this be treated as business loss? This is what non-salaried ppl are into in India.
The mindset on this forum is trading but there is a reason why FnO gains is treated as Non-Speculative Business Income. So following first principle thinking one should be able to adjust it against Business of non-speculative nature that a person is involved in - in the same PAN. I am just digging deeper because otherwise it will be pretty sad.
It will continue for as long as it stops working. 
