Intertemporal arbitrage refers to the simultaneous buying in the same market, sell futures contracts for delivery in different months of the same futures with a view to the favorable opportunity while these futures contracts to hedge open profit. Intertemporal arbitrage nothing to do with spot market prices, only on the premium and discount futures may occur. In practice, according to arbitrageurs different for different contract month traded near-month contract with the direction of the far month contract, intertemporal arbitrage can be divided into bull spreads, bear spreads and butterfly spread.
1. The bull spread (Bull Spread)
Bull spread is judged according to the general lack of market supply, spot demand is relatively strong, rise near month contract price is greater than the long-term contract in January, February or near the contract price is less than the long-term decline in January contracts, arbitrage direction at this time is to see more contracts in recent months, bearish far month contract.
Forward market bull spread is expected Basis (in recent months, far month price minus price) converges to zero from negative, reverse the market's bull spread is expected to diverge from a positive basis is more negative, so positive the bull market arbitrage belong to risk-free arbitrage, and the reverse bull market arbitrage belong to the relative upward trend in recent months contract arbitrage.
2. bear spread (Bear Spread)
Bear spread of judgment based on the general market is excess supply, relative lack of demand, will lead to the recent rise in January contract price is less than the long-term contract in January, the month or the recent contract prices declined more than month forward contracts, the trader can short in recent months, while the contracts do far month contract to perform bear spread.
Forward market is expected to bear spreads Basis (in recent months, far month price minus price) from a negative divergence to a larger negative value, the reverse market expectations Basis bear spreads converging to zero from a positive value, forward market bear spread belongs to the relative decline in recent months contract arbitrage, and the reverse in bear market arbitrage belong to risk-free arbitrage.
Spread Arbitrage Strategy Detailed
3. butterfly spread
Butterfly spread is another common form of intertemporal arbitrage. It is composed of two opposite directions, shared calendar spread centered delivery month of the composition. Butterfly spread of specific methods of operation are: to buy (or sell) the recent month contract, at the same time sell (or buy) the middle month contract, and buy (or sell) long-term contract in January, which is centered in May contract equal to the number of recent months and the number of the month and long-term.
See more centered butterfly contract arbitrage, belong to a bear market in recent months, a set of american bull spread far month, the market in recent months, plus reverse belonging to far-month forward market risk-free arbitrage; and bearish contracts centered butterfly arbitrage, belong to a set of american bull market in recent months, a far-month bear market arbitrage, in recent months, far month forward market interest belonging to reverse market risk-free arbitrage.
Reverse the market in recent months to see more centrally contract butterfly spread is a risk-free arbitrage, like the "butterfly wings down, everything was normal"; on the contrary, butterfly wings spread incitement to diverge.
Further Reading:
1. a quantitative strategist Confessions (Good text strongly recommended)
2. classic quantitative trading strategies available in the market are here! (Source)
3. futures / stock data Daquan query (History / real-time / Tick / finance, etc.)
5. From the high-frequency trading to quantify, can not read five books
