INDEX ARBITRAGE

An investment/trading strategy that exploits divergences between actual and theoretical futures prices. For example, the simultaneous buying (selling) of stock index futures (i.e., S&P 500) while selling (buying) the underlying stocks of that index , capturing as profit the temporarily-inflated basis between these two baskets . Often, the point where profitability exists is expressed at the block call as a number of points the future must be over or under the underlying basket for an arbitrage opportunity to exist. See: program trading