Look, how smart investors are making money on futures-spot mispricing

Termed reverse arbitrage, the trades exploit spot-futures mispricing due to supply-demand factors like the recent MSCI rebalancing-induced heavy cash buying, or corporate actions that lead to heavy futures selling due to anticipated fall in cash market shares.

Synopsis

Normally, equity futures trade at a premium to the underlying spot price — called cash and carry arbitrage. That is because the futures price equals spot price plus cost of carry, which is nothing but the interest rate to fund the purchase of shares minus dividend earned.