I share an example of an arbitrage strategy on a dollar futures.
Disclamer: I’ll make a reservation right away that I do not recommend the futures market to anyone who has not yet worked with futures and options. Arbitrage strategies involve limited risk, but there are many nuances in the derivatives market. Therefore, this note is for experienced investors, or for the general development of how such strategies are being implemented.
The strategy is arbitrage and is based on the difference in the futures price for the dollar and the dollar itself. The futures price includes 2 factors:
1. The value of the underlying asset (in this case, the dollar)
2. Value of money (asset price + risk-free rate * time). Here, perhaps, I will give an example: right now you can buy an asset for 100 rubles. And in a year – for 110 (because now you can put money in the bank and get 10%).
If you look at the last six months, then the dynamics of the futures price for the dollar and, in fact, the dollar itself looks like this:
Until February 22, the difference between the futures and the underlying asset was about 10% per annum. That is, if the date of expiration (execution) of the futures is mid-March, the futures will be 10% more per annum until mid-March. Etc.
To make sure that the future is honestly running after the spot, I took the whole of February, unloaded 5-minutes. I’ll show you an example on February 15:
A dollar futures is more expensive than the dollar by 9.4-10.6% per annum. If taken in absolute terms, then the difference is 57-64 kopecks. Only algorithmic robots can make money on this.
But now the difference between futures and spot reaches several rubles. This means that this market inefficiency can be realized by hand.
There is a strong surge in the middle of the chart – this is the collapse of the entire exchange infrastructure. In those days, I even took screenshots as a keepsake of how everything sold out: the derivatives market, the stock market, the foreign exchange market. There were anomalies.
I share an example of an arbitrage strategy on a dollar futures.
Disclamer: I’ll make a reservation right away that I do not recommend the futures market to anyone who has not yet worked with futures and options. Arbitrage strategies involve limited risk, but there are many nuances in the derivatives market. Therefore, this note is for experienced investors, or for the general development of how such strategies are being implemented.
The strategy is arbitrage and is based on the difference in the futures price for the dollar and the dollar itself. The futures price includes 2 factors:
1. The value of the underlying asset (in this case, the dollar)
2. Value of money (asset price + risk-free rate * time). Here, perhaps, I will give an example: right now you can buy an asset for 100 rubles. And in a year – for 110 (because now you can put money in the bank and get 10%).
If you look at the last six months, then the dynamics of the futures price for the dollar and, in fact, the dollar itself looks like this:
Until February 22, the difference between the futures and the underlying asset was about 10% per annum. That is, if the date of expiration (execution) of the futures is mid-March, the futures will be 10% more per annum until mid-March. Etc.
To make sure that the future is honestly running after the spot, I took the whole of February, unloaded 5-minutes. I’ll show you an example on February 15:
A dollar futures is more expensive than the dollar by 9.4-10.6% per annum. If taken in absolute terms, then the difference is 57-64 kopecks. Only algorithmic robots can make money on this.
But now the difference between futures and spot reaches several rubles. This means that this market inefficiency can be realized by hand.
There is a strong surge in the middle of the chart – this is the collapse of the entire exchange infrastructure. In those days, I even took screenshots as a keepsake of how everything sold out: the derivatives market, the stock market, the foreign exchange market. There were anomalies.
On the example of yesterday, see how the premium for the futures changed against the underlying asset: from a little more than 1 ruble to 2.5.
In the format of annual returns, these are incredible numbers, because you can make arbitrage.
I made a screenshot for you from the terminal:
A dollar can be bought/sold at the moment for 56.33 rubles
Futures for $1,000 with delivery on June 16 for 58,392 rubles. With delivery on 15.09 – for 60,799 rubles.
In Russia, futures for currency are not deliverable, but settlement – instead of the dollar, you will be counted the corresponding amount of rubles. Conditions of execution here:
Source
Economics of strategy:
To work with this arbitrage strategy, you need 67,600 rubles per trade with $1,000:
– 56 330 – for 1000 dollars on the exchange
– 7300 – futures margin
– 4000 – reserve
Further – you can scale a multiple of 1000 dollars. Because the trade is arbitrage, you are simultaneously buying $1,000 and selling $1,000 futures in the future. Losses from the futures will be compensated by the dollar position. And vice versa. You get the difference.
If we count to the nearest date of expiration (execution) of the futures, it turns out like this:
Freezing money for 23 days will give 3% of net income (or 2062 rubles) or 61% per annum.
If we implement the idea with a distant futures (execution on 09/15/2022), the picture is as follows:
Here the term of the idea is 114 days. And as a result, already 6.6% (4469 rubles), 22.7% per annum.