medium · Market Microstructure mmf-core
An authorized participant (AP) observes that an S&P 500 ETF has a NAV per share of $500.00 but is currently trading on the exchange for $500.50.
Which sequence of trades would the AP execute to capture this arbitrage opportunity?
- Sell the underlying stock basket and buy the ETF shares.
- Buy ETF shares and hold them until the NAV rises to $500.50.
- Buy the underlying stock basket and sell the ETF shares.
- Buy the ETF shares and redeem them for the underlying basket.
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