At 2:55 PM on the afternoon of the 14th, Zhang Yang hastily issued a trading instruction to purchase within the market the YinHua CSI China Inland Resources Index Fund. After the commission was successful, Zhang Yang let out a long sigh of relief, leaned back in his chair, and began to excitedly envision an extremely sumptuous "Valentine's Day Feast."
Zhang Yang's investment portfolio rarely included funds, but when the leveraged fund YinHua XinRui, which had already surged for four consecutive days, was once again locked at its limit up in the closing session on the 14th, and YinHua JinRui also unexpectedly hit the daily limit, he saw a arbitrage opportunity waving at him.
YinHua XinRui and YinHua JinRui are respectively the high-risk and low-risk shares after the split of the YinHua CSI China Inland Resources Index Fund. The former is commonly known as a "leveraged fund" in the industry and has a certain leverage ratio. After YinHua XinRui hit the limit again on the 14th, it had cumulatively surged by 45.8% over the past five trading days. However, this wasn't Zhang Yang's hunting target. His focus was on the fact that after YinHua XinRui and YinHua JinRui both hit their limits on that day, the unique arbitrage mechanism of the分级fund created an arbitrage space of as high as 5.4%.
"The arbitrage method is very simple, just subscribe to the YinHua CSI China Inland Resources Index Fund through the exchange, then split it into YinHua JinRui and YinHua XinRui, and sell them in the secondary market to achieve arbitrage. In this process, the only risks I need to bear are the subscription fee of the fund and the risk of the fund net asset value falling. Compared with the arbitrage space exceeding 25%, the operational cost-effectiveness is obviously extremely high," Zhang Yang said, "According to the fund subscription process, I can obtain the parent fund shares on the 16th and apply for the split on the same day, and complete the arbitrage by selling on the 17th, taking only three trading days."
Zhang Yang, immersed in the beautiful arbitrage vision, did not expect that the sudden change in the market would soon shatter his dream. On the 15th, shortly after opening, YinHua XinRui plummeted and was firmly locked at the lower limit at the close. YinHua JinRui fell by 2.47% on the day. Zhang Yang's arbitrage plan still had about a 14% arbitrage space at this time. However, according to the fund subscription and redemption rules, the instruction for Zhang Yang to subscribe to the YinHua CSI China Inland Resources Index Fund was just submitted to the fund company on that day.