Also known as 'cash and carry arbitrage' and 'buying the basis'. Trading index derivatives against each other or the underlying equities when they depart from fair value. If the derivative is trading above fair value, the trader would short the derivative and buy the stocks that comprise the index (or an arbitrage equivalent); if below, then the trader would go long the derivative and short the stocks.
(sometimes known as Program Trading) The practice of trading for profit the difference between a derivatives market and its physical market equivalent.
An investment/trading strategy that exploits divergences between actual and theoretical futures prices.
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A trading technique in which baskets of stocks and stock futures contracts are bought and/or sold according to their conformity and deviation from a stock index. To keep the position fully hedged, the stocks are bought and the futures are usually sold and vice versa. In doing this, the arbitrageur is locking in a profit (or loss). See: Arbitrage; Futures Contract; Hedging;
An investment strategy that attempts to profit from the differences between actual and theoretical futures prices of the same stock index. This is done by simultaneously buying (or selling) a stock index future while selling (or buying) the stocks in that index.
Index arbitrage involves trading the difference in value between the stock index futures and the underlying stocks.
Investment strategy designed to take advantage of pricing inefficiencies between the price of stocks in an index and the price of index futures contracts.
Trading in order to profit by temporary differences between the value of stocks in an index and the price of the future contract for a derivative index.
The simultaneous purchase (sale) of stock index futures and the sale (purchase) of some or all of the component stocks which make up the particular stock index to profit from sufficiently large intermarket spreads between the futures contract and the index itself.
Index arbitrage is a subset of statistical arbitrage focusing on index components.