medium · Market Microstructure mmf-core
An authorized participant (AP) observes that an S&P 500 ETF is trading at $500.50 on the exchange, while the underlying basket of 500 stocks has an aggregate NAV of $500.00 per share.
What action should the AP take to lock in an arbitrage profit?
- Buy ETF shares and sell S&P 500 futures to exploit the basis.
- Wait for the ETF price to revert to the NAV before taking any action.
- Buy the underlying stock basket and create new ETF shares to sell in the market.
- Sell the underlying stock basket and buy ETF shares to redeem for more stocks.
Sign up free to see the explanation and track your rank →
More Market Microstructure mmf-core practice
- A stock is trading at $100.00. The Level 1 S&P 500 Market-Wi… — What is the status of trad
- If the stock gaps down and opens at $69.50 on Tuesday morning, at what price will the trad
- Using the Lee-Ready algorithm, how should a trade occurring at $50.10 following a $50.00 t
- During the pre-open period of an opening auction, the exchan… — What is the primary purpos
- If a stock enters a 'limit state' and does not recover within 15 seconds, what is the regu
- A retail trader hears a stock tip on a popular social media… — How is this trader classifi
- A corn farmer is worried that prices will drop before the harvest in three months. The far
- What is the clearing price that maximizes volume?