Arbitrage trading of stock index futures refers to a transaction in which traders buy and sell at the same time by taking advantage of the temporarily unreasonable price relationship between two identical or related assets in the market. When this unreasonable price relationship shrinks or disappears, the opposite transaction is carried out to obtain risk-free profits.
The essence of stock index futures arbitrage is to speculate on basis or contract spread. The change of basis difference and price difference between contracts can be analyzed and predicted, and the correct analysis can make a profit. Even if the risk analysis of arbitrage is wrong, it is far lower than one-way speculation.
What are the types of stock index futures arbitrage?
According to the source of unreasonable price relationship, arbitrage can be divided into current arbitrage, intertemporal arbitrage, cross-market arbitrage and cross-variety arbitrage.
Spot arbitrage futures arbitrage is also called index arbitrage. Theoretically, there should be an inherent parity relationship between spot index and futures index price, but in fact, futures index price is often affected by many factors and deviates from its reasonable theoretical price. Once this deviation occurs, it will bring arbitrage opportunities. If the futures price is higher than the reasonable price, you can buy a basket of repeated indexes according to the composition and weight of the index constituent stocks.
Stocks and short futures contracts with relatively overvalued prices, when futures contracts expire, according to the principle of convergence of spot and futures prices, selling stock portfolios and closing futures contracts will earn arbitrage profits. This strategy is called positive basis arbitrage. If securities lending is allowed, negative basis arbitrage can also be carried out, that is, securities lending sells stock index spot portfolio and buys stock index futures.
Intertemporal arbitrage Intertemporal arbitrage refers to arbitrage by using the deviation of futures trading prices in different delivery months in the same market. For example, the arbitrage between the March contract and the June contract. Intertemporal arbitrage is the most common way of arbitrage trading, which mainly includes three basic trading forms: buy near and sell far arbitrage, sell near and buy far arbitrage and butterfly arbitrage.
Cross-species arbitrage Cross-variety arbitrage refers to the trading mode in which traders open positions on two different index futures contracts with strong price linkage. These two index futures can be traded on the same exchange or on different exchanges. For example, the Standard & Poor's Index (S&; P500) is highly correlated with NYSE Composite Index, and there is arbitrage opportunity between them. When the performance of S& Company is better than that of large companies, the price of new york Stock Exchange composite index futures is likely to be higher than that of S & P500 index futures. If the price of S & P500 index futures rises, buy NYSE composite index futures and sell S & P500 index futures arbitrage.
Cross-market arbitrage Cross-market arbitrage refers to the arbitrage method of buying and selling the same or similar stock index futures contracts in the same delivery month on different exchanges at the same time to earn the profit of the spread, also known as the spread between markets. For example, the Nikkei 225 index futures are traded on the Singapore International Financial Exchange (SIMEX), Osaka Stock Exchange (OSE) and Chicago Mercantile Exchange (CME). Because the underlying index is the same, the price trend of all futures contracts is the same, but due to various factors, the price of futures contracts with the same index will maintain a reasonable spread level. If the price relationship is temporarily abnormal, there is the possibility of profit from arbitrage trading.
At present, China's financial futures exchange only has the index futures products of Shanghai and Shenzhen 300 (2279.554,-1.69, -0.5 1%) stock index futures, which has not been realized in China.
The capital market is completely open, and cross-market arbitrage and cross-variety arbitrage are not operable for ordinary investors. The application of arbitrage strategy is mainly aimed at spot arbitrage and intertemporal arbitrage.
Event arbitrage and alpha strategy
In traditional investment, the positive risks and market risks that investors bear are matched, but to bear more positive risks without affecting the asset allocation of portfolio strategy, a prerequisite is that market risks and positive risks, market returns and positive returns (namely Alpha and Beta) should be separated. An important function of financial derivatives is to help realize the separation of α and β through hedging. The most commonly used derivative tool of Alpha strategy is stock index futures, which has strong liquidity, low transaction cost and no credit risk. China's Shanghai and Shenzhen 300 stock index futures will be launched soon, which provides a good foundation for the successful implementation of Alpha strategy.
The essence of alpha strategy is that the stocks (portfolios) held will have positive excess returns in the future. Such stocks (portfolios) are often constructed for specific events, such as dividends, adjustment of index stocks, mergers and acquisitions, restructuring or asset injection. These alpha strategies based on specific events are also called event arbitrage strategies.