Let’s say that an opportunity arose where you could buy a warehouse full of copper at a very low price. Also, you find that copper futures for delivery in three years are currently trading at a very high price. You calculate that the cost of purchasing the copper, maintaining the warehouse for three years, and then delivering the copper, is far less than the amount you would receive from selling an equivalent amount of copper futures contracts. You then buy the warehouse and immediately sell one futures contract for every 25,000 lbs of copper.

During the next three years, you keep evaluating the opportunities to reverse your transactions, but always calculate that you will make more by continuing to hold the short futures contracts and the copper. You thus end up in the arb for three years.