easy · Market Microstructure
Authorized Participants (APs) notice that an S&P 500 ETF is trading at $505.00 while the Net Asset Value (NAV) of the underlying stocks is $500.00.
Which action should the AP take to arbitrage this discrepancy?
- Sell the underlying stocks and buy the ETF shares.
- Wait for the closing auction to liquidate the stocks.
- Buy the ETF shares, redeem them for the stocks, and sell the stocks.
- Buy the underlying stocks, create ETF shares, and sell the ETF shares.
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