can someone explain these concepts? thx…
They’re arb opportunities… A stock is priced at 100 and a forward contract in one year is priced at 110. If IR are 6% and the stock pays 0.30 dividends in six months, then using a pricing model, you know it is 105.70ish fair value. Opportunity for arb, then… So, if you sell the fwd and buy a stock, which you hold until delivery one year later. This is called cash and carry. You buy the stock and “carry it” to delivery. Reverse cash and carry is simply the opposite. Say the fwd was priced at 102, then you’d buy the forward and sell the stock.