What is the difference between bull market spread and bear market arbitrage?
1 Different operation methods: the method of bull spread is that traders buy recent monthly contracts and sell forward monthly contracts at the same time; Bear market arbitrage is to sell contracts in the near month and buy contracts in the far month.
The principle is different: when the bull spreads, the spreads between contracts decrease, and the bear market arbitrage needs to increase the income through the spreads.
3 Different income: the income of bull market spread = opening spread-closing spread, and the arbitrage income of bear market = closing spread-opening spread.
In fact, arbitrage profit is based on the change of price difference, so where is the opportunity for arbitrage? The price difference is generally determined by the holding cost between two different delivery months, and the holding cost is determined by storage space, interest and insurance premium. If the price difference between the near-month contract and the far-month contract deviates from the normal period and the holding cost has not changed significantly, then there will be room for arbitrage.