The purest form of relative value: the same thing priced two ways at once. Your job is to notice, and to be fast.
Start the ETF Arbitrage drillFour other drills are free to try firstAn ETF holding three stocks is worth exactly the sum of those three prices — its net asset value. If the ETF trades below NAV it is cheap; above, it is rich.
The arithmetic is trivial. Adding three two-digit numbers is not the challenge. Doing it on every tick, without losing focus, is.
In the drill, gaps open mainly after news moves one underlying. That is faithful to reality: an ETF's quoted price is maintained by market makers, and when a component jumps, the ETF quote can briefly lag.
Real ETF arbitrage is fought over in microseconds by automated systems, so no human captures these gaps today. The exercise is not preparing you to do it manually — it is training the habit of continuously asking whether two related prices are consistent.
Most ticks offer no edge. The drill tracks a 'missed edge' column, and candidates are often surprised to find they traded frequently while missing the genuinely mispriced ticks.
Waiting is a position. Acting only when the gap exceeds the spread is the whole discipline.