Comment on Reverse Arbitrage? SLB?

Nithin Kamath commented on 21 May 2013, 01:51 PM


Will add it to the blog as I didn’t really explain this question there.

Here is what happens, You sell the stock at 2500 and buy futures at 2470. In between on one day the stock goes ex-dividend(assume rs 30), so the stock price and future price is around the same.

At this time you can sell the futures and buy back the stock.

Here is the catch though, when you are returning the stock back to the lender, you have to also give him the dividend. So basically the stock plus Rs 30 as dividend. Your reverse arbitrage opportunity was only for Rs 30 and everything has to be given back to the lender.

Hence the strategy would make no sense to take.

Hopefully this clarifies.


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