In-depth Analysis of the Sustainability of High Premium Arbitrage Opportunities for SDIC Silver LOF

Based on currently available information, when evaluating the high premium arbitrage opportunities and risk-reward ratio of SDIC Silver LOF (161226), three key discrepancies and uncertainties need to be clarified first:

• Inconsistent direction of subscription limit adjustments: According to online news (Yahoo Finance), around December 25, the fund announced that the daily subscription and fixed investment limits for Class A shares were adjusted to 100 yuan, down from the previous 500 yuan [1]. This contradicts your statement that “it was raised from 100 yuan to 500 yuan a week ago”. Without confirmation from a brokerage API, the timing and specific direction of this adjustment remain to be verified.
• Lack of evidence for significant share expansion: You mentioned that the number of shares increased from 10.97 million to 162.43 million (approximately 13.8 times), but currently there is no publicly available online data to support such a surge. LOF shares can only be sold after T+2 confirmation, and such a large-scale expansion in a short period is very rare in history. If the shares did not surge, the fluctuation of the premium rate is more affected by secondary market sentiment and tightened subscription limits rather than a significant increase in supply. This data needs to be treated with caution pending confirmation from official or brokerage API data.
• Need to distinguish between LOF and futures in terms of price limit mechanisms: LOFs are traded on exchanges (usually with a ±10% price limit), while futures are continuous contracts with no such price limit concept. Your mention of “three consecutive limit-up days followed by two consecutive limit-down days” is more likely to refer to the LOF’s secondary market continuously hitting the ±10% price limit or experiencing剧烈 price fluctuations, rather than the limit-up/limit-down under the futures mechanism.

After clarifying the above discrepancies, the following are the currently confirmable facts and preliminary assessment of arbitrage sustainability:

• Rapid compression and increased volatility of the premium rate: According to the data you provided, the premium rate dropped from 61.64% on December 24 to 23.22% on December 26, a cumulative compression of approximately 38.42 percentage points over two days. Online news also pointed out that the fund’s “on-exchange price deviated significantly from its net value, with the premium once approaching 70%”, and the secondary market price experienced剧烈 fluctuations of consecutive limit-up and limit-down days [1]. This indicates extremely unstable on-exchange sentiment, and the premium rate may continue to fluctuate sharply in the short term.
• Strict subscription restrictions by the fund company: According to online reports, the fund announced that the subscription/fixed investment limit for Class A shares was set at 100 yuan (previously 500 yuan) [1]. In addition, Bloomberg reported that the fund’s Class C shares have been suspended for subscription to curb the influx of extreme speculative funds [2]. These restrictive measures will significantly reduce the entry speed and scale of off-exchange arbitrage funds, thereby slowing down the effect of “arbitrage suppressing premiums”, but may also push up short-term premiums due to imbalances in on-exchange supply and demand.
• Time lag risk brought by the T+2 mechanism: LOF subscription shares can usually be sold only after T+2 confirmation. Python calculations show that if the premium rate drops from 61.64% to 23.22% in two days, the average daily compression is approximately 19.21% [0]. In an environment of extreme volatility, arbitrage returns may be eroded by the rapid reversal of the premium rate, or even result in losses.
• Sharp fluctuations in the underlying silver asset and margin increases: Silver has seen extremely volatile trends recently. Online news shows that spot silver once approached $84 per ounce before falling back to around $75, with a single-day fluctuation range exceeding 6%–10% [4][5]. CME has raised margin requirements to cope with high volatility [5]. The sharp fluctuations of the underlying asset will be transmitted to the LOF’s net value and price, amplifying the risks on both ends of the arbitrage.

Comprehensive assessment (before obtaining real-time brokerage API data):

• Sustainability of arbitrage opportunities (high uncertainty):

  • If the subscription limit is indeed tightened to a low level (e.g., 100 yuan) or Class C subscriptions are suspended, the restriction on off-exchange arbitrage funds may delay the return of premiums, but it will also limit the scalable arbitrage size, resulting in limited profit space. The sustainability of this opportunity depends more on subscription policies, share changes, and secondary market sentiment; before official data confirmation, sustainability is highly uncertain.
  • You mentioned significant share expansion; if true, it would theoretically increase on-exchange supply and suppress premiums. However, without authoritative data to support this, the effect is difficult to quantify, and the conclusion that “a surge in shares led to a significant drop in premiums” cannot be drawn for the time being.

• Risk-reward ratio (significantly weaker at the current stage):

  • Expected return: Based on the 23.22% premium rate on December 26 and calculations for different subscription limits, the potential nominal return is limited; if the premium rate continues to compress, the actual return will be lower or even negative.
  • Risks:
    1. The premium rate can compress by approximately 38 percentage points within 2–3 trading days, leading to extremely high time lag risk;
    2. The underlying silver asset is highly volatile, leading to two-way fluctuations in the LOF’s secondary market price and net value;
    3. If on-exchange liquidity is insufficient, selling after T+2 may result in discounted transactions;
    4. Changes in subscription policies and trading restrictions (e.g., temporary suspension) will directly disrupt the arbitrage window.

Conclusion: Against the backdrop of current high volatility, high policy uncertainty, and the lack of authoritative data confirmation on share and subscription limit adjustments, the risk-reward ratio of high premium arbitrage has significantly deteriorated, making it unsuitable for small and medium-sized funds to take aggressive actions. If subsequent access to brokerage API or fund official announcements on share, limit, and real-time premium data is obtained, dynamic assessments and scenario calculations can be made based on the latest data.

References (from online searches):
[1] Yahoo Finance Hong Kong - 5 consecutive rises! Geopolitical tensions persist, silver rises another 3% today to hit a new all-time high (Silver LOF premium, limit adjustment and suspension announcement): https://hk.finance.yahoo.com/news/連5漲-地緣政治局勢持續緊張-白銀今續漲3-再創史高-首次突破74美元-005503101.html
[2] 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
[3] 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
[4] Forbes - Silver Price Drops More Than 7% After Hitting Record High: https://www.forbes.com/sites/connormurray/2025/12/29/silver-price-slips-more-than-6-after-historic-rally
[5] Bloomberg - Silver Rises to Record Above $80 in Historic End-of-Year Rally (mentions CME margin increase): https://www.bloomberg.com/news/articles/2025-12-28/silver-rises-to-record-above-80-in-historic-end-of-year-rally

Data and calculations (from Python):
[0] Analysis of premium rate and arbitrage risk-reward ratio based on provided data: The premium rate dropped from 61.64% to 23.22%, a cumulative compression of approximately 38.42% over two days, with an average daily compression of approximately 19.21%. Calculation of potential returns based on the 23.22% premium rate and 100/500 yuan subscription limits, along with a list of major risks such as T+2 time lag, volatility, and liquidity.