1) Traditionally, we have understood arbitrage to mean, the simultaneous buying and selling of the same security between different markets, when that was possible. Now with volumes being overwhelmingly concentrated on the NSE, that window is closed.
2) Then started the 'arbitrage' between the major indices and the values of their underlying shares. In volatile markets, this kind of opportunity presents itself often.
3) Another such 'arbitrage' is the difference in prices of a Future between the far month and the near month, between Spot and Futures and between Futures (calculated as synthetic put + call options) and Option prices. There is a surrogate for the 'lending rate' on the security markets, and can be 'stripped out' and traded separately, like an interest rate. This interest rate should logically follow the patterns of the debt markets, but they don't; usually because this 'lending rate' is decided by the balance between short-sellers and long-buyers in the market, and can sometimes have no relation to the debt market. In some specific stocks, the variances can be very large.
A watchful 'arbitrageur' can locate these patterns and trade these strips like an interest rate, borrowing in the debt market and 'lending' into the securities market.
2) Then started the 'arbitrage' between the major indices and the values of their underlying shares. In volatile markets, this kind of opportunity presents itself often.
3) Another such 'arbitrage' is the difference in prices of a Future between the far month and the near month, between Spot and Futures and between Futures (calculated as synthetic put + call options) and Option prices. There is a surrogate for the 'lending rate' on the security markets, and can be 'stripped out' and traded separately, like an interest rate. This interest rate should logically follow the patterns of the debt markets, but they don't; usually because this 'lending rate' is decided by the balance between short-sellers and long-buyers in the market, and can sometimes have no relation to the debt market. In some specific stocks, the variances can be very large.
A watchful 'arbitrageur' can locate these patterns and trade these strips like an interest rate, borrowing in the debt market and 'lending' into the securities market.
