Cash-N-Carry explained

Trader has selected a stock called ‘ABC’ and he wants to do cash-and-carry arbitrage for this stock. Assume that, typically, this stock is priced in the spot-market at Rs.100 and it is priced in the future-market at Rs.104.
For example,
End of Day Spot (Apr-01-2009) Price for RELIANCE (NSE) = 1,581.25
End of Day Future (Expiry Apr-30-2009) Price for RELIANCE (NSE FnO) = 1585.05

Goal of Arbitrage: to make a profit of Rs. 3
This type of arbitrage has 2 transactions: the 1st Xaction will involve ‘selling the future & buying the spot’ and the 2nd Xaction will try to square-off the position (to get out of the 1st Xaction) so that at the end, the trader is not holding any inventory.
Xaction #1: Sell the Future, Buy the Spot
Obviously, the trader thinks that, sometimes, the price of ABC in the future-market (Pft1: Price of future during transaction #1) goes above Rs. 104 (which is the fair price: Pf). So, we need to monitor the data feed to detect the situation when Pft1 is trading at or above (Pf +3), remember 3 is the profit-goal (Pg), ie. Pft1 >= (Pf + Pg).
So, in our example of stock ABC, we will be monitoring to detect the situation, when the price of ABC in the future market is >= (104 + 3) = Rs. 107. Let’s assume that, we detect a situation, where ABC is trading at Rs. 110 in the future-market and it is trading at Rs.100 in the spot-market. So, we will immediately execute the following pair of trades:
Trade1.1 Sell future at 110: cash inflow = 110
Trade1.2 Buy spot at 100: cash outflow = 100
Net profit in Transaction #1 (NP1) = 10
Xaction #2: Buy the Future, Sell the Spot
Now, in Xaction #2, we want to square-off our positions, so that, we can zero-out our inventory and preserve our profit-goal (Pg) of Rs. 3. We know for sure that, sooner or later, the future-price of ABC will become Rs. 104 (which is the fair price: Pf). So, we will be monitoring both the spot-price (Pst2: Price of spot during transaction #2) and the future-price (Pft2: Price of future during transaction #2). If (Pft2 – Pst2) is less-than-or-equal-to (NP1 – Pg), we will execute the trades. In our example, (Pft2 – Pst2) >= (10 – 3) = 7.
So, lets say, we detect a situation, where, the future is trading at 107 and the spot is trading at 100, so, (Pft2 – Pst2) = (107 – 100) = 7. This satisfies the condition: (Pft2 - Pst2) <= (NP1 – Pg), so, we will immediately execute the following pair of trades:
Trade2.1 Buy future at 107: cash outflow = 107
Trade2.2 Sell spot at 100: cash inflow = 100
Net loss in Transaction #2 (NL2) = 7
So, our overall profit for both Xactions #1 & #2 is (NP1 – NL2) = (10 – 7) = 3. Mission Accomplished!!