medium · Market Microstructure
The S&P 500 index is at 5,000. A 30-day futures contract has a theoretical fair value of 5,020.
If an arbitrageur observes the futures trading at 5,025 and executes an index arbitrage trade, what is their expected gross profit per contract (multiplier: 250) if their round-trip transaction costs (basket execution + commissions) total 2.0 index points?
- $750
- $1,250
- $500
- $1,750
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