Cash and carry is an arbitrage technique used with a stock or commodity and the associated futures contract. When there is a spread or difference in the stock and futures prices, arbitrage is possible. For example, buying the S&P cash index and shorting the S&P futures contract. The two eventually come back into price alignment, as the cash index rises and the futures drop (or vice versa).
There are risks to this strategy, which are called carry cost. The arbitrageur holds the futures contract until expiration, which also means the storage of the physical asset, such as oil or wheat. This storage of the asset is called carrying the asset. Another carry cost is margin on the futures contract. Non-physical assets such as the S&P 500 do not have to be stored, which means its carry cost is only margin.
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Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment.
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