Arbitrage: trying to profit from the price difference of the same or similar financial products in different markets or in different forms. The ideal state is risk-free arbitrage. Arbitrage used to be a trading technique used by some alert traders, but now it has developed into a technique to profit from the small price difference of the same securities in different markets with the help of complex computer programs. For example, if the market under computer monitoring finds that ABC shares can be bought at the price of $65,438+00 in new york Stock Exchange and sold at the price of $65,438+00.12 in London Stock Exchange, arbitrageurs or special programs will buy ABC shares in new york and sell the same amount in London at the same time, thus obtaining the price difference between the two markets.

Spot arbitrage

Spot arbitrage refers to a futures contract. When there is a price difference between the futures market and the spot market, traders will use these two markets to sell low and sell high, thus narrowing the price difference between the spot market and the futures market.

Cross-market arbitrage

Cross-market arbitrage: refers to buying (or selling) a commodity contract in a certain delivery month on one exchange and selling (or buying) the same commodity contract in the same delivery month on another exchange, with a view to hedging the contracts held by the two exchanges at favorable opportunities.

Intertemporal arbitrage

Intertemporal arbitrage refers to an operation mode in which the same member or investor establishes the same number of trading positions in opposite directions in different contract months of the same futures product for the purpose of earning the difference, and ends the trading by hedging or delivery.

Intertemporal arbitrage is one of the most common arbitrage transactions, which is to profit by hedging the same commodity when the normal price difference between different delivery months changes abnormally. It can also be divided into bull market spread and bear market arbitrage. For example, in the bull spread, buy the contract in the latest delivery month and sell the contract in the forward delivery month, hoping that the recent contract price will increase more than the forward contract price; Bear market arbitrage is the opposite, that is, selling the recent delivery monthly contract and buying the forward delivery monthly contract, expecting the price drop of the forward contract to be smaller than the recent contract.

Butterfly sleeve

Butterfly arbitrage is hedging profit by using the price difference in different delivery months, which consists of two opposite intertemporal arbitrage and * * * enjoying the contract in the middle delivery month. It is an option strategy with limited risks and returns, and it is a combination of bull market spread and bear market arbitrage.

Butterfly arbitrage is a synthetic form of arbitrage trading, involving three contracts. Three kinds of contracts in futures arbitrage are short-term contracts, long-term contracts and longer-term contracts, which we call near-end contracts, mid-range contracts and far-end contracts. Butterfly arbitrage has no opening in the net position. In the position arrangement, the method of 1 near-end contract: 2 middle contract: 1 far-end contract is adopted. Among them, the direction of the near contract and the far contract is the same, while the direction of the intermediate contract is opposite to them. That is, one group is: buy near month, sell middle month and buy far month; The other group is: selling in the near month, buying in the middle month and selling in the far month. The two groups of exchanges span three different delivery periods, and the futures contracts with three different delivery periods are not only the same variety, but also the same quantity, and the difference is only the price. It is precisely because of the objective differences in the price levels of futures contracts in different delivery months, and with the changes in the relationship between supply and demand in the market, there may be a large price difference between the contracts in the middle delivery month and the contracts in both delivery months. This has caused arbitrageurs to be highly interested in butterfly arbitrage, that is, by operating butterfly arbitrage, using the futures contract spreads in different delivery months to hedge and close positions to make profits.

For example:

(1) Buy 3 contracts in March, sell 6 contracts in May and buy 3 contracts in July; (2) Sell 3 contracts in March, buy 6 contracts in May and sell 3 contracts in July.

It can be seen that butterfly arbitrage is a combination of two intertemporal arbitrages.

In (1) is: bull market spread+bear market arbitrage in (2) is: bear market arbitrage+bull market spread.

The principle of butterfly arbitrage is that arbitrageurs think that the correlation between the futures contract price in the middle delivery month and the contract price in the two delivery months will be different.

Types of butterfly arbitrage

Butterfly arbitrage can be divided into long butterfly arbitrage and short butterfly arbitrage. Long butterfly arbitrage is expected to stabilize the market price, hoping to make a profit in this price range. I can choose long butterfly arbitrage, buy a call option at a lower negotiation price, buy a call option at a higher negotiation price, and sell two call options at a moderate negotiation price between the above two negotiation prices. If the market only fluctuates in a small range as expected, it can be profitable; The possible loss is limited to the difference between the paid and received option fees.

Characteristics of butterfly arbitrage

Characteristics of butterfly arbitrage:

1. Butterfly arbitrage is essentially the arbitrage of the same commodity across delivery months;

2. Butterfly arbitrage consists of two intertemporal arbitrages with opposite directions;

3. The bond between two intertemporal arbitrage is the futures contract in the middle month, and the quantity is the sum of the two ends;

4. Butterfly arbitrage must make three orders simultaneously.

Diagonal arbitrage

DiagonalSpread refers to the behavior of earning risk-free profits by using the price difference of call options or put options with the same underlying assets, different agreement prices and different validity periods. Any arbitrage in which the contract period of a call option is longer than that of a put option and the contract price is different. It is a common trading strategy of options and belongs to advanced option strategy. Typical diagonal arbitrage includes diagonal bull spread, diagonal bear market arbitrage and diagonal butterfly arbitrage.

Conversion arbitrage

ConversinonSpread arbitrage refers to the transaction of buying related futures contracts while buying put options and selling call options.

Long intertemporal arbitrage

In a bull market, forward contracts will show better resistance to rising or falling due to investors' good expectations of the spot market prospects. At this time, you can buy forward contracts and sell recent contracts. This kind of arbitrage is called multi-period arbitrage.

1. When the trend of the stock market is upward, and the futures contract price in the forward delivery month is more likely to rise rapidly than the recent contract price, investors who carry out long-term inter-period arbitrage sell the recent contract and buy the forward contract.

Recent contract forward contract basis

Start selling 1 June s&; P500 index futures contract purchase 1 copy of 65438+February s&; P500 index futures contract 2.00

1June s&the purchase ends at 95.50; P500 index futures contract sold 1 copy 65438+February s&; P500 index futures contract 2.50

Price difference change -0.50+ 1.00

As the arbitrageurs expected, the market rose, the spread between the forward contract 65438+February and the recent contract in June widened, and the net spread profit was (-0.5+1.00) × 500 = $250.

2. If the stock market trend is upward, and the price of futures contracts in the near delivery month rises faster than that in the long-term contracts, investors will buy futures contracts in the near future and sell the long-term contracts, and then sell the recent contracts to buy the long-term contracts when the prices rise in the future.

Recent contract forward contract basis

Start buying 1 June S&at 95.00; P500 index futures contract purchase 1 copy of 65438+February s&; P500 index futures contract 2.00

End sales 1 copy in June s&; P500 index futures contract in 97.25+February s& sell 1 share; P500 index futures contract 1.75

Price difference change -0.50-0.25

In this multi-position intertemporal arbitrage transaction, the spread between the forward stock index futures contract and the recent stock index contract is enlarged, and the profit that the arbitrageur can get is (0.50-0.25) × 500 = 125 USD.