What do we mean about arbitrage between Equity and F&o at time of Expiry of Futures contract?
An Arbitrage would mean a trade which would result in risk less profit.
Do note that on expiry of a future contract the price of the spot (equity) will be equal to the price of the future contract. In case you observe any difference, you can buy/sell equity and at the same time sell/buy futures and let it expire which will result in a risk less gain. However the chances of finding such opportunities are very miniscule.
For eg: If on the last trading day of May expiry,Reliance is trading at 1045 and if the May Futures of Reliance is at 1049, you can buy the stock and sell an equivalent amount of future contract to make a riskless gain of Rs.4/-
Does this mean futures price will always be tightly packed with spot price?
Isn’t futures price is always higher than spot price? Even if there a difference of 1 rupee, can I say that it is a riskless profit by arbitrage between those two?
What could be the problems, if its true?