If You Determine That the S&P 500 Index Futures Is

question 49

Multiple Choice

If you determine that the S&P 500 Index futures is overpriced relative to the spot S&P 500 Index, you could make an arbitrage profit by

• A) buying all the stocks in the S&P 500 and selling put options on the S&P 500 Index.
• B) selling short all the stocks in the S&P 500 and buying S&P Index futures.
• C) selling all the stocks in the S&P 500 and buying call options on the S&P 500 Index.
• D) selling S&P 500 Index futures and buying all the stocks in the S&P 500.
• E) None of the options are correct.

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Definitions:

Percentile

A value on a scale of one to a hundred that indicates the percent of a distribution that is equal to or below it.

Normal Curve

A bell-shaped curve that represents the distribution of many types of naturally occurring data; synonymous with Gaussian distribution.

Normal Random Variable

A variable that is distributed in a way that fits the normal (Gaussian) distribution, characterized by its mean and standard deviation.

Mean

The average of a set of numerical values, calculated by adding them together and dividing by the number of values.