Does the Presence of an Arbitrage Opportunity Affect the Basis?
Yes, the presence of an arbitrage opportunity directly affects the basis. Arbitrageurs exploit the difference between the spot price and the futures price when the basis deviates significantly from the theoretical cost of carry.
Their trading activity (buying the cheaper asset and selling the dearer one) forces the two prices back into alignment, ensuring that the basis remains within a narrow, theoretically justified band.
Glossar
Spot Price
Valuation ⎊ The spot price in cryptocurrency, options, and derivatives represents the current market-clearing price for immediate delivery of the underlying asset, functioning as a fundamental benchmark for pricing more complex instruments.
Futures Price
Valuation ⎊ Futures price, within cryptocurrency and derivative markets, represents a binding agreement to transact an asset at a predetermined future date and price, functioning as a standardized forward contract facilitated by an exchange.
Arbitrage Opportunity
Discovery ⎊ An Arbitrage Opportunity materializes when a transient price differential exists for the same asset or instrument across two or more distinct markets or execution venues, such as a spot crypto market and its corresponding perpetual futures contract.