Cash-And-Carry-Arbitrage

A combination of a long position in an asset such as a stock or commodity, and a short position in the underlying futures. This arbitrage strategy seeks to exploit pricing inefficiencies for the same asset in the cash (or spot) and futures markets, in order to make riskless profits. The arbitrageur would typically seek to "carry" the asset until the expiration date of the futures contract, at which point it would be delivered against the futures contract. Therefore, this strategy is only viable if the cash inflow from the short futures position exceeds the acquisition cost and carrying costs on the long asset position.

Consider the following example of cash-and-carry-arbitrage. Assume an asset currently trades at $100, while the one-month futures contract is priced at $104. In addition, monthly carrying costs such as storage, insurance and financing costs for this asset amount to $3. In this case, the trader or arbitrageur would buy the asset (or open a long position in it) at $100, and simultaneously sell the one-month futures contract (i.e. initiate a short position in it) at $104. The trader would then carry the asset until the expiration date of the futures contract, and deliver it against the contract, thereby ensuring an arbitrage or riskless profit of $1.


Investment dictionary. . 2012.

Look at other dictionaries:

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  • cash-and-carry arbitrage — ( carry arbitrage) A basis trade involving a long cash position exactly offset by a short futures position. The holder of the position believes that the futures contract is expensive. He shorts the future, borrows at money market rates to finance …   Financial and business terms

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  • Reverse Cash-and-Carry-Arbitrage — A combination of a short position in an asset such as a stock or commodity, and a long position in the futures for that asset. Reverse cash and carry arbitrage seeks to exploit pricing inefficiencies for the same asset in the cash (or spot) and… …   Investment dictionary

  • reverse cash and carry arbitrage — An arbitrage trade entered into where a futures contract is purchased and the underlying asset is sold in the cash market. Such a trade will be effected where the trader believes that the futures is trading relatively cheaply to its fair value.… …   Financial and business terms

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  • Cash and carry — may refer to:*Cash and Carry (TV series), the first network televised game show. *Cash and carry (World War II), a revision of the Neutrality Acts, designed to aid the British. *Cash and carry (wholesale), a type of operation within the wholesale …   Wikipedia

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