[tylerl]

Eehm... Arbitrage is buying on one market to immediately sell on another market at a profit. Which is exactly what these folks were doing.

Except that the other market administratively blocked them from selling. Then the first market wouldn't reverse the purchase, leaving the would-be arbitrageurs holding the bag.

[mmhsieh]

The ones who were able to unload at the moment they purchased were arbing. If you could sell the toilet paper before you even got it out of the store at Costco, you have executed a successful arb. There was no risk in this trading profit.

The others who carried inventory for a nontrivial period of time were market makers, and carried market maker risk. Market maker risk is the bid-ask moving against you when you are carrying inventory. These guys were basically carrying unhedged physical long positions in toilet paper thinking they had a free option to unwind at par, but Costco changed the game on them.

Not all of these guys were arbing.