Explain the Concept of “Reverse Cash and Carry Arbitrage.”

Reverse cash and carry arbitrage is a strategy used when the futures price is trading below its theoretical fair value, creating a state of backwardation. The arbitrageur simultaneously sells the underlying spot asset and buys the undervalued futures contract.

They then wait for expiration, where the two prices converge, or they unwind the position earlier for a profit, effectively locking in the difference between the current spot price and the lower futures price.