Bank nifty future 29th June 2017 expiry@22270 and 25th May 2017 expiry@23340 is having an arbitrage value of 70 point or 2800 in money term.
Reason 1: This indicates the short term the market demand is more as compare to the long term.
Reason 2: Long in banking stock is hedged with the index short.
Reason 3: Since few banking heavy weight not declared the result anticipating the higher over hedging happened.
Reason 4: FOMC meeting outcome expectation hence over hedging.
Option strategy: This action is temporary and will not stay longer.
What kind of strategy one can form?
a. Buy 22500 call and put of 25th May 2017 expiry and sell 22000 put and 23000 call option of 29 June expiry each one lot. Excellent risk reward. Book profit either at 22000 or 22900 spot level.
b. Buy Future June one lot, 22500 put may 25th expiry one lot, sell 23000 call June 29th expiry one lot. Book loss if price fall below 21800 profit above 22900.