index arbitrage

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Index arbitrage

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.

Index Arbitrage

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.

index arbitrage

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.
References in periodicals archive ?
ShenYi has direct connections to all of the equity and future exchanges and is the first index arbitrage fund registered in China.
Or, at least it was for Jared Dillian, a Lehman Brothers index arbitrage trader from 2001 to 2008.
Deutsche Bank said that it 'sincerely regrets the impact on the KOSPI market of an index arbitrage position unwind involving a small number of Deutsche Bank Group employees at the option maturity of 11 November 2010.
23] Index arbitrage studies provide further insight into arbitrage profitability.
However, share price index arbitrage involves transactions in both the futures and share markets, and thus account must be taken of the taxes and transaction costs in the two markets.
In some cases, traders who want to buy or sell large blocks may put them in as market-on-close orders, hoping that the orders will be seen as related to some index arbitrage activity, rather than as a trade based on fundamentals.
Other topics Mayer provides insights into are the futures and options markets along with index arbitrage, and the sophisticated details revealed on the manipulation of them.
Very few of the survey respondents considered themselves "very familiar" with program trading or index arbitrage.
Lee: Before joining Wells Fargo Securities as a Director and Trader in July 2011, Lee was an executive director in the Delta One Trading Group at JP Morgan where he traded program trading risk and index arbitrage.
Abdullah served as a portfolio manager and consultant for several hedge funds where he primarily focused on the development and execution of ETF and index arbitrage trading strategies.
Dexia Asset Management has launched the Dexia Index Arbitrage fund in Italy.
Make no mistake about it, the long-run survival and vitality of our domestic securities market does not depend primarily on the introduction of circuit breakers, prohibitions on program trading, restrictions on index arbitrage, tighter short-sale restrictions, or any other intrusive regulatory mechanisms.