medium · Market Microstructure mmf-core
An institutional trader observes that the S&P 500 futures contract is trading at 5,025 while the 'fair value' (based on the spot index plus cost-of-carry) is 5,020. The trader buys the underlying 500 stocks and sells the futures contract.
What risk is the trader most exposed to if the price relationship diverges further before expiring?
- Basis Risk
- Gamma Risk
- Adverse Selection
- Inventory Risk
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