When using stock index futures for arbitrage, it is necessary to observe the changes of index futures. Generally speaking, the changes of stock index futures should be within a certain range. Once the index futures change beyond this range, there will be arbitrage opportunities. When the market price of index futures is greater than the given upper limit, forward arbitrage will be carried out, that is, buying spot index and selling index futures; When the market price of index futures is less than the given lower limit, reverse arbitrage is carried out, that is, selling spot index and buying index futures.
Since ETF has no stamp duty, it only needs to consider the commission of ETF transaction, which saves a lot of costs. At the same time, ETF is more liquid, unlike stocks that may be suspended for some reason. Here we take ETF as the spot of index futures, analyze the upper and lower limits of arbitrage, and draw the conclusion that when the market price of index futures fluctuates between the upper and lower limits, we think the price of index futures is reasonable, and there is no arbitrage space at this time. When the index futures price exceeds the upper and lower limit, it can immediately enter the arbitrage space and obtain low-risk arbitrage income.
ETF (exchange traded fund) is called transactional open index fund. It combines the advantages of closed-end funds and open-end funds. Investors can not only buy and sell ETF shares in the secondary market like buying and selling stocks, but also buy or redeem ETF shares from fund management companies through designated ETF dealers. However, its subscription and redemption must be exchanged for ETF shares with a basket of stocks or exchanged for ETF shares with a basket of stocks.
If it is a forward arbitrage operation, when the actual price of the index futures contract is higher than the spot ETF, the operation strategy at this time is to buy ETF and sell the index futures contract. Our arbitrage space is the price difference between futures index and spot ETF, and we have locked the price difference between them when we opened the position. When the stock index futures price converges to the spot price on the maturity date, we will close the position, thus obtaining the risk-free arbitrage space.
In the process of forward arbitrage operation, our costs mainly include: 1, commission for trading ETF; 2. The impact cost of buying and selling ETFs; 3. Transaction cost of index futures; 4. The impact cost of buying and selling index futures contracts. Therefore, when the arbitrage space is greater than the arbitrage cost, the actual operation can be carried out. In this way, the upper limit of index futures arbitrage is: spot ETF price+transaction cost;
In the case of reverse arbitrage, when the actual price of index futures is lower than the theoretical price of index futures, the operation strategy at this time is to sell ETF and buy index futures. Our arbitrage space is the difference between spot ETF and index futures, and we have locked the difference between them when we opened the position. When the stock index futures price converges to the spot price on the maturity date, we will close the position, thus successfully obtaining the risk-free arbitrage space.
In the process of reverse arbitrage, our costs mainly include: 1, the commission for buying and selling ETFs; 2. The impact cost of buying and selling ETFs; 3. Transaction cost of index futures; 4. The impact cost of buying and selling index futures contracts. Therefore, when the arbitrage space is greater than the arbitrage cost, the actual operation can be carried out. The upper limit of index futures arbitrage is: spot ETF price-transaction cost
In this way, we get the upper and lower bounds of the interval pricing model of index futures:
Upper limit: spot ETF price+transaction cost;
Lower limit: spot ETF price-transaction cost.
When the market price of index futures fluctuates between the upper and lower limits, we think that the price of index futures is reasonable, and there is no arbitrage space at this time.