Arbitrage by Short Futures of a stock and then buy the same number of shares in cash.
there is no risk …
but most of the times bank deposits might give better returns
Plenty of risks.
you can find details info on these risk on any of the MF Arbitrage fund scheme documents.
It’s best to leave arbitrage to MFs if you are planning to do arbitrage.
It requires you to build quant models and then monitor them depending on your timeframe.
Requires a lot of resources, Data/programmers/Time/sufficient capital usually huge and don’t forget the fees on Data and taxes after your trades. All this will eat into your profits , IF ANY.
Also note many many people do arbitrage these days, so opportunities are harder and harder to find.
Its not suitable for retail traders unless you are well equipped with good capital and quants to run arbitrage strategies.
do you find any risk in selling futures with holding the shares in cash ?
only risk i can find in this straetgy is margin calls and nothing else
There could be liquidity risk , execution risk, quant model error risk.
you would have to be super computer or something to lock in the profit on the arbitrage. very hard for a human to do. This right here is a one big risk.
Arbitrage cannot be done manually by a human, you need a computer to do it for you.
What your quant models shows you will be different in the real world.
you can surely try out the strategies to understand these risks better.
Remember, there are plenty of funds out there doing the same thing.
i agree that there are many arbitrages that normal retail can not do … but this covered future arbitage is not one of them…
we dont need any supercomputers todo this basic covered futures arbitrage .
considering the stock is in F&O , it will be fairly liquid …
anyway i dont see any deal breaking risk in this , but returns will be better if we put it in fixed deposit
Yes, after you calculate sharpe ratios and returns after tax. Its hard to justify doing this kind of arbitrage.
you would need a super computer if you are doing this on intraday timeframes on say 100 FNO stocks.
Even Arbitrage MFs are struggling to generate returns, but there is tax benefit in it.
its not profitable most of the time … but i dont see any serious risks involved in this
there might be arbitrage opportunities before or after m&a , bonus or splits quite regularly
if someon has surplus , they can park their money … we dont need any supercomputers todo it
I meant arbitrage for intraday.
The point is i wouldn’t be too worried about risk given its an arbitrage strategy. Big worry is the return.