Spread arbitrage

Generally speaking, the profit and loss of spread arbitrage can be calculated by the following formula:

Profit and loss of spread arbitrage = σ profit and loss of each futures contract (30)

Generally speaking, spread arbitrage can be divided into buying arbitrage and selling arbitrage. Buying arbitrage means that if the arbitrageur expects the spread of futures contracts in different delivery months to widen, the arbitrageur will buy one leg with higher price and sell the other leg with lower price. Selling arbitrage means that if the arbitrageur expects the spread of futures contracts in different delivery months to narrow, the arbitrageur will sell the leg with higher price and buy the leg with lower price.

Therefore, arbitrage gains and losses can also be calculated by the following formula:

Profit and loss of buy arbitrage = closing spread-opening spread (3 1)

Profit and loss of selling arbitrage = opening spread-closing spread (32)