Sustainability and Risk Assessment of High-Premium Arbitrage Strategy for Silver LOF

Now I will provide you with a comprehensive assessment of the high-premium arbitrage strategy for Silver LOF.

Based on market data and recent events, the arbitrage opportunity for SDIC Silver LOF (161226) is converging rapidly, and risks are rising significantly.

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• Highest premium rate on Dec 24: 61.64%
• Premium rate on Dec 26: 23.22%
• Premium rate compression range: about 38.42 percentage points, dropping by about 62.3% in 3 days

Note: The above premium rate changes are based on user-provided data, showing that the premium rate has converged sharply in the short term.

• Arbitrage yield on Dec 24 (sold at limit-down price of 2.272 yuan): about 16.70%
• Estimated arbitrage yield on Dec 26: about 8.5%
• Yield decline: about 8.2 percentage points
• Yield decline range: about 49.1%

• Shares a week ago: about 10.97 million
• Shares this week: about 162.43 million (newly added shares)
• Share change: Newly added shares increased from 10.97 million to 162.43 million (an increase of about 1380%), and the total shares increased from 10.97 million to 173.40 million (an increase of about 1480%)
• Subscription limit increased: from 100 yuan to 500 yuan

Chart Notes: Top-left: Premium rate changes (Dec 24 – Dec 29), red solid line and fill indicate rapid decline of premium rate; Top-right: Secondary market price trend (Dec 20 – Dec 29), blue line reflects price fluctuations; Bottom-left: Share comparison (a week ago vs this week), bar chart shows explosive growth of shares; Bottom-right: Changes in arbitrage yield (estimated yield at different time points). Data source: Public market data and analysis estimates provided by users.

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LOF fund arbitrage has inherent time delays:

• Subscription confirmation cycle: Shares confirmed on T+1, shares can be sold on T+2
• Risk exposure duration: about 2-3 trading days (including night session)
• Night session trading time: Silver futures night session is about 5.5 hours (typical time: 21:00-02:30)

Core issue: During the arbitrage cycle, investors cannot close positions midway and are fully exposed to the dual fluctuation risks of silver price and premium rate.

Chart Notes: Shows key nodes and corresponding risks of the arbitrage cycle from T+0 to T+3; the red curve indicates the trend of premium rate declining over time.

Main driving factors leading to rapid convergence of premium rate:

• Influx of arbitrage funds: Surge in newly added shares brings a large number of arbitrage sell orders
• Fund company responses: Suspended subscription of Class C shares (short-term arbitrage channel restricted); increased subscription limit to 500 yuan (accelerated premium regression); managers repeatedly reminded that the premium is “unsustainable” [2]

The premium rate dropped from 61.64% to 23.22%, indicating that the arbitrage window is closing rapidly. If the current premium further declines, the arbitrage yield may drop to about 6-8% or even lower.

• Silver futures volatility: Daily volatility can reach 5-10%
• LOF limit-up/limit-down restriction: ±10%, may “close” in extreme cases
• Liquidity risk: Thin buy orders or difficulty in trading may occur near the limit-down price

According to Bloomberg reports, the fund hit a 10% limit-down on Thursday [3]. The title states “Thursday” but does not directly give the specific date; currently, it is Dec 29, 2025 (Monday), so the Thursday mentioned in the report may be this Thursday or last Thursday. Therefore, we only state it as “hit a 10% limit-down on Thursday” according to the report without attributing a date.

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• Assumptions: Stable market, moderate premium regression
• Expected result: Premium of about 60% at subscription, about 20% at sale, net yield of about 16%
• Current applicability: With the rapid convergence of premium rate and fund company intervention, the feasible window for this scenario has narrowed significantly

• Trigger factors: Silver futures plummet during the arbitrage cycle; premium rate compresses to below 5%; inability to sell due to secondary market limit-down
• Possible result: Principal loss of 5-15% or even higher
• Current environment: High volatility, rapid premium decline, and tight liquidity increase the probability of this scenario occurring

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According to Bloomberg reports [2]:

• Suspended subscription of Class C shares, short-term arbitrage channel restricted
• The fund has risen by about 187% cumulatively (year-to-date performance), while Shanghai silver futures rose by about 145% in the same period
• Managers repeatedly warned that the premium is “unsustainable”

• Concentrated influx of retail investors and media attention intensify volatility [1]
• LOF products overall have a “limit-up wave”, increasing the risk of regulatory attention
• If extreme volatility continues, it may trigger stricter regulation or window guidance

• Spot silver price is at a high level; fundamental or policy changes may trigger price correction
• There are uncertainties in tracking error and liquidity premium/discount between futures and LOF

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• If the premium rate further drops from about 23% to single digits, the arbitrage space will shrink significantly
• Influx of arbitrage funds and fund company intervention accelerate premium regression
• Recommendation: Only open to professional investors who can monitor risks in real time and bear liquidity risks

• With the balance of regulation and market mechanisms, the premium rate may tend to a reasonable range (e.g.,5-10%)
• High-premium arbitrage opportunities basically disappear, and the fund price returns to its intrinsic value
• New increments are mainly driven by sentiment and fundamentals, not arbitrage funds

Main risk factors (sorted by severity):

1. Time difference risk
   : Exposure to dual fluctuations of price and premium during T+2 to T+3 cycle
2. Premium compression risk
   : Arbitrage window closes rapidly; yield drops from about16% to about8% and continues to decline
3. Liquidity risk
   : In extreme market conditions, limit-down or no buy orders, unable to sell at expected price
4. Market volatility risk
   : Daily volatility of silver futures (5-10%) amplifies the uncertainty of arbitrage profit and loss
5. Policy risk
   : Fund company’s subscription restrictions, regulatory intervention, etc., may interrupt the arbitrage path

• Retail investors
  : Not recommended to participate in current high-premium arbitrage; if silver exposure is needed, research futures, ETFs, or related stocks
• Professional arbitrageurs
  : Precisely calculate costs and slippage (including transaction fees, time costs, impact costs); strictly implement stop-loss and position management to avoid excessive single exposure; closely monitor fund announcements and secondary market liquidity changes; consider hedging tools to reduce directional risks

• Real-time changes in premium rate (if it continues to drop below10%, the arbitrage window is basically closed)
• Fund share changes and secondary market trading activity
• Fund company policy adjustments (subscription limits, suspension and resumption)
• Trend and volatility of silver futures main contract (AGL8)
• Market sentiment and regulatory dynamics

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The sustainability of the current Silver LOF arbitrage strategy is low, and the risk-reward ratio is deteriorating:

1. Arbitrage window is closing
   : The premium rate dropped from about61.64% to about23.22% in3 days, and the arbitrage yield dropped from about16% to about8% and may continue to decline.
2. Concentrated risk exposure
   : Multiple risks such as time difference from T+2 to T+3, night session trading, extreme volatility, and liquidity exhaustion overlap.
3. Market intervention accelerates regression
   : Fund company’s suspension of Class C subscriptions, increase of limits, and clear warnings jointly promote the premium to converge to a reasonable level.
4. Changes in investor structure
   : Influx of arbitrage funds and resonance of retail investor sentiment amplify short-term volatility and increase uncertainty.

: In the current environment, the high-premium arbitrage strategy for Silver LOF is no longer suitable for retail investors. For professional arbitrageurs, arbitrage should be regarded as a high-risk trading strategy rather than a stable income source, and position and stop-loss should be strictly controlled.

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[1] Bloomberg - “Precious Metals Craze Prompts China Fund to Turn Away Investors” (https://www.bloomberg.com/news/articles/2025-12-26/precious-metals-craze-prompts-china-fund-to-turn-away-investors)
[2] Bloomberg - “China Silver Fund Plunges After String of Moves to Quell Frenzy” (https://www.bloomberg.com/news/articles/2025-12-25/china-silver-fund-plunges-after-string-of-moves-to-quell-frenzy)
[0] Gilin API Data and Analysis Estimates (based on public data and hypothetical scenarios provided by users)