Suppose the difference between the current month and next month future of nifty is around 50 points. Can this hedged position be taken with large quantity to make risk free profit?
Whats your plan of action when the current month futures expire? Let’s say for simplicity purpose the difference between the futures of this month and next month is still 50 on the date of expiry of this month
You can but profit is not risk free, currently if premium is 50 and on expiry day next month contract can be trading in discount to spot and in that case there are chances to make a loss, this is not a regular phenomenon but there is possibility. Point is there in nothing like risk free in most cases.
New bee idea…you are learning !! Just think on this line… if it is so easy to make money, market movers would have made tons of money on this simple idea.
Usually, the difference in the premium will be such that if you keep the same amount in bank, you would get approximately difference in premium. This is how the future price is determined. Take a look at nice article on future pricing on zerodha varsity.