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An investment trading strategy that exploits divergences between actual and theoretical futures prices. An example is the simultaneous buying (selling) of stock index futures (i.e., S&P 500) while selling (buying) the underlying stocks of that index, capturing as profit the temporarily inflated basis between these two baskets. Often, the point at which profitability exists is expressed at the block call as the number of points the future must be over or under the underlying basket for an arbitrage opportunity to exist. See: Program trading.
A form of arbitrage in which an investor takes advantage of discrepancies in price between a stock index and a futures contract on that index. Index arbitrage occurs when an arbitrageur takes one position on a stock index (or on the individual stocks underlying the index) while taking an equal but opposite position on a futures contract on the index. He/she is then able to profit from the difference in the price between the two.
An investment strategy that takes advantage of the price discrepancies between an asset or group of assets and an index futures contract on the asset. For example, a money manager might attempt to earn a profit for shareholders by selling an overpriced stock index futures index and buying the underlying stock. See also stock-index arbitrage.