Zerodha....
- Thread starter bharath.mang
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- Tags bakwaas now cheapest brokerage nest nest plus new broker zerodha zerodha trader
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Hi Zerodha, been using your trading account since last 2 months & I am delighted with your service & low brokerage.
Don't know if it's the correct place to ask but read an article "Stock lending booms as reverse arbitrage oppurtunities surge" in today's DNA money section. After reading that article learnt that certain investors are allowed to hold their short positions in equities for more than a day.
I wanna know if
1) this facilty is a privilege given to large market players only or to any ordinary investor?
2) I can hold equity short positions for more than intraday with you?
3) such a thing is allowed only for arbitrage & not for speculation?
I am asking this because as per my knowledge one can't hold short position in stocks for more than intraday & this article clearly points that this is not the case.
link to epaper:http://epaper.dnaindia.com/epapermain.aspx check out page 13.
Regards.
Don't know if it's the correct place to ask but read an article "Stock lending booms as reverse arbitrage oppurtunities surge" in today's DNA money section. After reading that article learnt that certain investors are allowed to hold their short positions in equities for more than a day.
I wanna know if
1) this facilty is a privilege given to large market players only or to any ordinary investor?
2) I can hold equity short positions for more than intraday with you?
3) such a thing is allowed only for arbitrage & not for speculation?
I am asking this because as per my knowledge one can't hold short position in stocks for more than intraday & this article clearly points that this is not the case.
link to epaper:http://epaper.dnaindia.com/epapermain.aspx check out page 13.
Regards.
Lesson time... 
...
1. Futures are at a premium to the stock... So RIL futures is say 800 and spot is 780... You realize that futures are trading at unusually high premium... What you do ???
But RIL stock and 780 and sell RIL futures at 800... This trade is an arbitrage trade as you carry no directional risk of stock going up or going down...
Ideally on the expiry day both stock and futures should be trading at the same price... What you do is, sell the stock and buy back the futures at the same time and pocket the Rs 20 which was the premium for futures...
How much was money required?? for setting up 1 lot of arb
Buy 250 shares equity( 1 lot = 250 for RIL) at 780 = Rs 1.95lks
Short 1 lot of RIL Futures= Margin for 1 lot, around 30k
Total = 2.25lks
Profit made= 20 x 250 = Rs 5000
Cost of trade(including brokerage, STT etc) = 250 to 2000 based on where you are trading, with Zerodha closer to 250 .. ...
This is a riskless trade and a return of almost 2% is crazy... The problem though is, you will never get such kind of opportunities... Every tom, dick and harry can get into such a trade, so market will never give you an opportunity to make riskless 2% for a month...what you could make is closer to 1%, which doesn't make sense coz you can almost make so much from a F.D today..
2. RIL stock is trading at Rs 800 and Futures is trading at Rs 780... Stock futures should ideally never be at a discount( exception is when you are expecting dividends)...
Ideally, you would sell RIL equity at 800 and buy futures and 780 and keep the position till expiry... This is called Reverse arb....But the problem is, if you keep a short equity position open, you have to deliver the equity on T+2, if you sold RIL on monday, you have to deliver the shares on Wed.... But, you don't have any shares to deliver....
This is where the exchange setup SLB(Stock lending and Borrowing) comes into place... Assume there is this X person, who has 1lk shares of RIL in his demat and is an investor... He is not bothered about what RIL share price is, because he is in RIL for long term... But if the shares are sitting in his Demat, he is not making any return out of it( other than dividend)... Here this peson X has the opportunity of lending RIL shares to people who want to reverse arb for an interest...
You were trying to do reverse arb, so what you do is... You borrow 250 shares from X and sell it in the market for Rs 800 and buy futures at Rs780... on the expiry day, you sell your futures and buy back the stock in the market... Once the stock is bought back you return it to person X and hence make this profit of Rs 20 by doing reverse arb...
Cost of trade would typically be the same as setting up an arb. The additional cost would be what X charges to lend you the shares...
Good thing here is, there are a lot of such opportunities that arise in the markets and because the junta doesn't have access to SLB, they keep coming often on various stocks....
Why can't the junta get into trading these opportunities?? This guy X, who is lending you shares today are all either HNI's or institutions... They won't lend you 250 shares and all.. They will talk in 10,000's and lakhs...
How much return can you make?? hmmm... sesa goa last year was giving crazy opportunities... But you could make 15% annualized risk free, which is pretty good for a lot of institutions... But that said, it all depends on whether you have lenders for those stocks in the market or not...
Hopefully didn't confuse you guys much...
Cheers..
... 1. Futures are at a premium to the stock... So RIL futures is say 800 and spot is 780... You realize that futures are trading at unusually high premium... What you do ???
But RIL stock and 780 and sell RIL futures at 800... This trade is an arbitrage trade as you carry no directional risk of stock going up or going down...
Ideally on the expiry day both stock and futures should be trading at the same price... What you do is, sell the stock and buy back the futures at the same time and pocket the Rs 20 which was the premium for futures...
How much was money required?? for setting up 1 lot of arb
Buy 250 shares equity( 1 lot = 250 for RIL) at 780 = Rs 1.95lks
Short 1 lot of RIL Futures= Margin for 1 lot, around 30k
Total = 2.25lks
Profit made= 20 x 250 = Rs 5000
Cost of trade(including brokerage, STT etc) = 250 to 2000 based on where you are trading, with Zerodha closer to 250 ..
...This is a riskless trade and a return of almost 2% is crazy... The problem though is, you will never get such kind of opportunities... Every tom, dick and harry can get into such a trade, so market will never give you an opportunity to make riskless 2% for a month...what you could make is closer to 1%, which doesn't make sense coz you can almost make so much from a F.D today..
2. RIL stock is trading at Rs 800 and Futures is trading at Rs 780... Stock futures should ideally never be at a discount( exception is when you are expecting dividends)...
Ideally, you would sell RIL equity at 800 and buy futures and 780 and keep the position till expiry... This is called Reverse arb....But the problem is, if you keep a short equity position open, you have to deliver the equity on T+2, if you sold RIL on monday, you have to deliver the shares on Wed.... But, you don't have any shares to deliver....
This is where the exchange setup SLB(Stock lending and Borrowing) comes into place... Assume there is this X person, who has 1lk shares of RIL in his demat and is an investor... He is not bothered about what RIL share price is, because he is in RIL for long term... But if the shares are sitting in his Demat, he is not making any return out of it( other than dividend)... Here this peson X has the opportunity of lending RIL shares to people who want to reverse arb for an interest...
You were trying to do reverse arb, so what you do is... You borrow 250 shares from X and sell it in the market for Rs 800 and buy futures at Rs780... on the expiry day, you sell your futures and buy back the stock in the market... Once the stock is bought back you return it to person X and hence make this profit of Rs 20 by doing reverse arb...
Cost of trade would typically be the same as setting up an arb. The additional cost would be what X charges to lend you the shares...
Good thing here is, there are a lot of such opportunities that arise in the markets and because the junta doesn't have access to SLB, they keep coming often on various stocks....
Why can't the junta get into trading these opportunities?? This guy X, who is lending you shares today are all either HNI's or institutions... They won't lend you 250 shares and all.. They will talk in 10,000's and lakhs...
How much return can you make?? hmmm... sesa goa last year was giving crazy opportunities... But you could make 15% annualized risk free, which is pretty good for a lot of institutions... But that said, it all depends on whether you have lenders for those stocks in the market or not...
Hopefully didn't confuse you guys much...
Cheers..
Lesson time... ...
Buy 250 shares equity( 1 lot = 250 for RIL) at 780 = Rs 1.95lks
Short 1 lot of RIL Futures= Margin for 1 lot, around 30k
Total = 2.25lks
... Buy 250 shares equity( 1 lot = 250 for RIL) at 780 = Rs 1.95lks
Short 1 lot of RIL Futures= Margin for 1 lot, around 30k
Total = 2.25lks
Wouldn't the margin for being short on the same share be taken care by equity that I have purchased and paid for?
Yes i need to keep paying / getting M2M if any. Why do we need to pay a separate margin for the short side of the trade?
Thanks
Lesson time... ...
1. Futures are at a premium to the stock... So RIL futures is say 800 and spot is 780... You realize that futures are trading at unusually high premium... What you do ???
But RIL stock and 780 and sell RIL futures at 800... This trade is an arbitrage trade as you carry no directional risk of stock going up or going down...
Ideally on the expiry day both stock and futures should be trading at the same price... What you do is, sell the stock and buy back the futures at the same time and pocket the Rs 20 which was the premium for futures...
How much was money required?? for setting up 1 lot of arb
Buy 250 shares equity( 1 lot = 250 for RIL) at 780 = Rs 1.95lks
Short 1 lot of RIL Futures= Margin for 1 lot, around 30k
Total = 2.25lks
Profit made= 20 x 250 = Rs 5000
Cost of trade(including brokerage, STT etc) = 250 to 2000 based on where you are trading, with Zerodha closer to 250 .. ...
This is a riskless trade and a return of almost 2% is crazy... The problem though is, you will never get such kind of opportunities... Every tom, dick and harry can get into such a trade, so market will never give you an opportunity to make riskless 2% for a month...what you could make is closer to 1%, which doesn't make sense coz you can almost make so much from a F.D today..
2. RIL stock is trading at Rs 800 and Futures is trading at Rs 780... Stock futures should ideally never be at a discount( exception is when you are expecting dividends)...
Ideally, you would sell RIL equity at 800 and buy futures and 780 and keep the position till expiry... This is called Reverse arb....But the problem is, if you keep a short equity position open, you have to deliver the equity on T+2, if you sold RIL on monday, you have to deliver the shares on Wed.... But, you don't have any shares to deliver....
This is where the exchange setup SLB(Stock lending and Borrowing) comes into place... Assume there is this X person, who has 1lk shares of RIL in his demat and is an investor... He is not bothered about what RIL share price is, because he is in RIL for long term... But if the shares are sitting in his Demat, he is not making any return out of it( other than dividend)... Here this peson X has the opportunity of lending RIL shares to people who want to reverse arb for an interest...
You were trying to do reverse arb, so what you do is... You borrow 250 shares from X and sell it in the market for Rs 800 and buy futures at Rs780... on the expiry day, you sell your futures and buy back the stock in the market... Once the stock is bought back you return it to person X and hence make this profit of Rs 20 by doing reverse arb...
Cost of trade would typically be the same as setting up an arb. The additional cost would be what X charges to lend you the shares...
Good thing here is, there are a lot of such opportunities that arise in the markets and because the junta doesn't have access to SLB, they keep coming often on various stocks....
Why can't the junta get into trading these opportunities?? This guy X, who is lending you shares today are all either HNI's or institutions... They won't lend you 250 shares and all.. They will talk in 10,000's and lakhs...
How much return can you make?? hmmm... sesa goa last year was giving crazy opportunities... But you could make 15% annualized risk free, which is pretty good for a lot of institutions... But that said, it all depends on whether you have lenders for those stocks in the market or not...
Hopefully didn't confuse you guys much...
Cheers..
... 1. Futures are at a premium to the stock... So RIL futures is say 800 and spot is 780... You realize that futures are trading at unusually high premium... What you do ???
But RIL stock and 780 and sell RIL futures at 800... This trade is an arbitrage trade as you carry no directional risk of stock going up or going down...
Ideally on the expiry day both stock and futures should be trading at the same price... What you do is, sell the stock and buy back the futures at the same time and pocket the Rs 20 which was the premium for futures...
How much was money required?? for setting up 1 lot of arb
Buy 250 shares equity( 1 lot = 250 for RIL) at 780 = Rs 1.95lks
Short 1 lot of RIL Futures= Margin for 1 lot, around 30k
Total = 2.25lks
Profit made= 20 x 250 = Rs 5000
Cost of trade(including brokerage, STT etc) = 250 to 2000 based on where you are trading, with Zerodha closer to 250 ..
...This is a riskless trade and a return of almost 2% is crazy... The problem though is, you will never get such kind of opportunities... Every tom, dick and harry can get into such a trade, so market will never give you an opportunity to make riskless 2% for a month...what you could make is closer to 1%, which doesn't make sense coz you can almost make so much from a F.D today..
2. RIL stock is trading at Rs 800 and Futures is trading at Rs 780... Stock futures should ideally never be at a discount( exception is when you are expecting dividends)...
Ideally, you would sell RIL equity at 800 and buy futures and 780 and keep the position till expiry... This is called Reverse arb....But the problem is, if you keep a short equity position open, you have to deliver the equity on T+2, if you sold RIL on monday, you have to deliver the shares on Wed.... But, you don't have any shares to deliver....
This is where the exchange setup SLB(Stock lending and Borrowing) comes into place... Assume there is this X person, who has 1lk shares of RIL in his demat and is an investor... He is not bothered about what RIL share price is, because he is in RIL for long term... But if the shares are sitting in his Demat, he is not making any return out of it( other than dividend)... Here this peson X has the opportunity of lending RIL shares to people who want to reverse arb for an interest...
You were trying to do reverse arb, so what you do is... You borrow 250 shares from X and sell it in the market for Rs 800 and buy futures at Rs780... on the expiry day, you sell your futures and buy back the stock in the market... Once the stock is bought back you return it to person X and hence make this profit of Rs 20 by doing reverse arb...
Cost of trade would typically be the same as setting up an arb. The additional cost would be what X charges to lend you the shares...
Good thing here is, there are a lot of such opportunities that arise in the markets and because the junta doesn't have access to SLB, they keep coming often on various stocks....
Why can't the junta get into trading these opportunities?? This guy X, who is lending you shares today are all either HNI's or institutions... They won't lend you 250 shares and all.. They will talk in 10,000's and lakhs...
How much return can you make?? hmmm... sesa goa last year was giving crazy opportunities... But you could make 15% annualized risk free, which is pretty good for a lot of institutions... But that said, it all depends on whether you have lenders for those stocks in the market or not...
Hopefully didn't confuse you guys much...
Cheers..
I think you haven't considered the pledging of shares... this would give higher returns compared to what you have calculated...
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