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1. Index Arbitrage
Is the buying and selling of indexes, and indexes components done
simultaneous.
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2. How to Index Arbitrage
Index Arbitrage Steps:
1. Determent; if future prices are being misprice (over or under value
relative to its fair price).
2. Simultaneously; short the future contract and with the proceeds buy
the securities inside the index, by weight.
3. If the scenario is on reverse, you may buy the forward contract by
selling the components inside the index.
Index Fair Value Theory:
• If you were to determent that the futures values are overprice: you will
short the future contract and buy the index at the spot price.
• If you were to determent that the futures values are underprice: you
will buy the future contract and sell the index at the spot price.
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3. Index Arbitrage Trading and Fair Value Calculator
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