D4F price out??

rustic1

Active member
243 1
This afternoon D4F price on the DOW seems way out for the first 15 mins it was up to 30 points even now at 16.29 it is out not by as much. I know they always differ but not by as much

Kathy
 

mmillar

Guest
330 5
ARBITRAGE

I've copied this from another post ...



You first assume that two SB companies (A & B) have their prices in line most of the time. Assume that they both have a spread of 2.

The 'real' price is 100. Company A's price is 99/101. Company B's price is at 99/101.

Then the market moves up rapidly.

The 'real' price is at 120. Company A keeps an accurate track on the market and their price is 119/121. But Company B has lagged behind and their price is 109/111.

You Buy from Company B at 111 and Sell from Company A at 119. You are now overall flat and have no risk no matter which way the market moves.

The market keeps going up and the 'real' price settles at 150. Company A's price is 149/151 and Company B has now caught up and is also at 149/151.

You now Sell from Company B at 149, making yourself flat with them. You make 149-111=38 points.
You now Buy from Company A at 151, making yourself flat with them. You lose 151-119=32 points.

Therefore, you have made 6 points. The only risk is the timing.
 
 
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