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Overnight Premium and Futures Contracts


Spook1304

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Hi, I'm looking for someone to sense check something for me. 

I've been looking at trading cash positions overnight and collecting the premium for them (carry trade). I believe I've found a viable strategy but seems a bit "too good to be true" which suggests I'm mis-understanding something or missing a huge risk somewhere.

Heres what I have:
BUY Oil - US Crude (£1) - for 8233.3- £1 per point
This costs £1.40 to open and another £1.40 to close.
An overnight credit will be paid to me of £1.78 for each night I hold this (obviously this rate can and will change daily): (CHECK IMAGE ATTACHMENT)

then:
SELL Oil - US Crude (£1) DEC-23 Futures Contract for 8260.0 - £1 per point - Expires on 17th Nov 2023 - 17 days from now
This costs £3 to open and another £3 to close. there are no overnight fees or payments. (CHECK IMAGE ATTACHMENT)

so as the Futures price should expire at the spot price this should technically make an arbitrage scenario?
The difference in my BUY SPOT and SELL FUTURE is 26.7 points (I'm buying spot at 8233 and selling future at 8260). As the future contract will expire at the spot price, this should equate to £26.70 worth of profit.
On top of that I should make £30.26 in overnight "premiums" minus fees so:

+£26.70 from gap between spot and future
+30.26 overnight "premium"
-£8.80 Fees 
= £46.16 profit (assuming a premium of £1.70 per night which is likely to change for better or worse)

Now I don't think for a second that the above is correct, and I believe I'm mis-understanding or missing a huge risk somewhere but for the life of me I cant see where.
I did try this on a spread betting account but those account use "Forwards" instead which do not expire at the spot price (very sneaky) but "Futures" definitely should expire (and be settled) at the spot price if not rolled over.
Can someone let me know where I'm going wrong here?

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Edited by Spook1304
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  • 2 weeks later...

Didn’t work out mate. Futures markets are meant to expire at the price of the spot market (or vice versa) according to every source everywhere including IG but after testing and getting in touch with their helpdesk to confirm, they said that the undated contract doesn’t do this so there is no guarantee the undated and future contract will be the same price when it expires. They’ve yet to specify what exactly the undated contract tracks as the whole point of the futures market is to guarantee a price in the future which is settled at the cash price of the instrument on expiry which doesn’t happen here on IG (despite their literature showing otherwise). Unless someone from IG wants to explain exactly what the undated contract tracks? For now you can just assume it’s some arbitrary instrument. Getting bucket shop vibes

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