LOF Arbitrage Analysis Based on User-Provided December Interval Data

Based on the December interval data you provided (premium rate, share volume, and limit changes), the following is a systematic analysis and conclusion; for real-time data not obtained (such as the latest net value, limits), I have conducted calculations and deductions based on the “user-provided scenario/example”. The conclusion can be updated immediately upon obtaining the latest data (if you need it, I can continue to crawl real-time data for review).

I. Data Overview (User-Provided Scenario/Example)

• On-exchange shares: Increased from approximately 10.97 million shares to 162.43 million shares within a week, a growth rate of over 10 times (+~1380%)
• Premium rate: Rose from 6.75% at the start of the month to a maximum of 61.64%, then fell back to 23.22% (end of the month)
• Purchase limit: Reduced from 500 yuan to 100 yuan
• Price pattern: Fluctuation mode of three consecutive daily limit-ups followed by two consecutive daily limit-downs

II. Arbitrage Mechanism and Cost Cycle (Based on General LOF Rules)

• Arbitrage path: When the secondary market has a high premium, sell or hedge at market price on-exchange, and simultaneously subscribe at net value off-exchange; after shares are confirmed on T+2 or T+3, transfer custody to on-exchange for sale/hedging to earn the price difference.
• Key time and friction: Subscription confirmation generally takes T+2 (some accounts/systems can be close to T+1.5; actual confirmation is subject to brokers and fund companies); transfer custody + sale takes about another T+1 to T+2; the entire cycle usually takes about 3-4 trading days. During this period, secondary market volatility and liquidity risks must be borne.
• Arbitrage costs: Subscription fees (about 1.0%–1.5%, varying by channel), redemption fees (usually higher for short-term holdings, e.g., 0.5%–1.5%, depending on holding period), transaction commissions, stamp duty (only on sales), and possible capital/securities lending costs.

III. Impact of Significant Premium Rate Fluctuations

• Increased return elasticity: Theoretical arbitrage space is significant during high premium periods (e.g., 61.64%); a premium decline (e.g., 23.22%) will compress the potential returns of arbitrage positions that have not yet completed entry, and may even lead to loss exposure in established hedge positions.
• Valuation deviation risk: Extreme premiums are often accompanied by emotional and liquidity resonance; once prices return to net value, arbitrage positions are exposed to the dual risks of “premium contraction + market volatility” before completion.
• Market efficiency clues: The rapid expansion of shares in the short term indicates that market participants respond relatively quickly to price differences, but the influx of arbitrage supply itself will lower the premium rate, reflecting a dynamic rebalancing process.

IV. Impact of Sudden Reduction in Purchase Limit (500→100)

• Compression of unit capital capacity per account: The maximum investment per transaction per account has been reduced from 500 yuan to 100 yuan. Large funds require multi-account/split-account strategies, significantly increasing operational complexity and compliance requirements.
• Relatively friendly to small and medium funds: The 100-yuan threshold allows more individual investors to participate, but does not change the fact that “unit capital capacity is limited”.
• Not directly equivalent to “arbitrage space compression”: Arbitrage space is determined by “premium rate - arbitrage cost”; limits mainly affect executable scale and operational efficiency. If market liquidity is limited, multi-account/multi-transaction subscriptions may marginally increase buying pressure, accelerate premium convergence, and indirectly compress the achievable arbitrage window.

V. Assessment of Arbitrage Strategy Sustainability

• Short-term (1–2 weeks):
  • Premium remains relatively high (if 23.22% is significantly higher than cost, the example is still favorable).
  • After the limit is reduced to 100, the executable scale shrinks, but there is still space in the short term. Need to dynamically monitor changes in premium rate and turnover.
• Mid-term (1–3 months):
  • With increasing supply (significant rise in shares) and market learning effects, the central premium rate tends to move downward.
  • The lower the limit, the more dependent on multi-account and high-frequency operations, leading to a decline in sustainability and cost-effectiveness.
• Long-term (>3 months):
  • When the premium rate stabilizes in a range close to cost (e.g., <2–3%), plus time and operational costs, the arbitrage strategy is basically ineffective.
  • If the silver theme and macro environment push up sentiment again, it may bring a new premium window, but this is an event-driven opportunity, not a stable Alpha.

VI. Key Risks (For LOF Arbitrage)

• Premium convergence risk: Price regression to net value during the arbitrage cycle will erode or even eliminate arbitrage returns.
• Liquidity risk: When the secondary market has insufficient depth, selling/hedging may lead to impact costs and execution delays.
• Quota and fee risk: Further tightening of limits or fee adjustments will change the revenue-cost structure.
• Theme and macro risks: Silver price fluctuations, commodity and equity market linkages, policies and regulations will all affect on-exchange and off-exchange price behavior.
• Time cost and capital occupation: A 3-4 day cycle means capital occupation and opportunity cost; need to evaluate from the perspective of annualized returns.

VII. Investor Response Recommendations

• Strictly set a “premium - cost” safety margin: Enter only when the premium rate is significantly higher than the full-chain cost; it is recommended to set stop-loss and hedge trigger thresholds.
• Batch entry and hedging: Avoid full position at a single point in time; combine securities lending or derivative hedging (if available) to manage Beta exposure.
• Multi-account and compliance management: Under compliance premises, moderately increase execution scale through split accounts, but need to keep good operation and risk control logs.
• Dynamic monitoring indicators: Track changes in premium rate, turnover, subscription/redemption status, and limits; exit quickly if necessary.
• Risk level adaptation: High-risk strategy, suitable only for professional investors with intraday/inter-day hedging capabilities and strict risk control; ordinary investors should mainly observe with small positions or choose more stable allocation strategies.

VIII. Scenario Calculation (Example, Assuming Premium Rate 23.22% and Total Cost 2.5%)

• Annualized perspective: A single cycle takes about 3-4 trading days (≈1 week), with a single-cycle return of about 20.72% (example value, for demonstration only, excluding slippage and extreme situations). Annualized based on 50 weeks is about 1036% (theoretical value), but actual returns will be significantly lower due to premium convergence and scale limitations.
• If the limit is reduced from 500 to 100, the single transaction capital capacity per account drops to 1/5; if the original scale needs to be maintained, the number of operating accounts and transactions increases significantly, leading to higher marginal costs and time investment.

IX. Conclusion

• There is still considerable arbitrage space in the short term, but the decline in premium rate and tightening of limits have significantly reduced the strategy’s sustainability and scale capacity.
• The strategy’s sustainability is highly dependent on the “premium rate - cost” safety margin and capital management capabilities; when the premium converges to a range close to cost, the strategy will be unsustainable.
• It is recommended to treat this as a phased, event-driven opportunity, supplemented by strict hedging and batch execution, and be ready to exit at any time.

Note: The above analysis based on the December interval data you provided and general LOF rules is a “user-provided scenario/example”. After obtaining the latest data (net value, limits, secondary market transactions and fees), the calculations and conclusions can be updated; if you need me to continue crawling the latest data for verification, please let me know.