medium · Market Microstructure
A trader observes that the S&P 500 futures price is 5,025 while the calculated fair value (based on cost-of-carry) is 5,020.
If round-trip transaction costs are $3.00, what is the most profitable action?
- Buy the futures and sell the cash equity basket.
- Sell the futures and buy the cash equity basket.
- Buy both futures and the basket to hedge against rising interest rates.
- Do nothing, as the discrepancy is within the no-arbitrage band.
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