Cash and Carry Vs Reverse Cash and Carry - Arbitrage Techniques has been confusing. Lets consider the following three components
1) Stock or an asset
2) Money (Zero coupoun bond)
3) Forward/Futures contract
When a forward/futures is overpriced - we sell the futures/forward
we purchase a stock/asset and we carry some money
This scenario is called as cash and carry.
When a futures/forward contract is underpriced - we sell the stock/asset, put some money and purchase the futures/forward contract.
This is called as reverse cash and carry.
These are two major arbitrage techniques.
