If a stock index futures contract is overpriced, you would exploit this situation by

A) selling both the stock index futures and the stocks in the index.
B) selling the stock index futures and simultaneously buying the stocks in the index.
C) buying both the stock index futures and the stocks in the index.
D) buying the stock index futures and selling the stocks in the index.
E) None of the options are correct.

Question

Zybrea Knight · Accepted Answer

Final Answer : B, Explanation :  When a stock index futures contract is overpriced, an arbitrage opportunity exists. You can exploit this by selling the overpriced futures contract and buying the underlying stocks in the index at their current market prices. This strategy is known as cash and carry arbitrage.

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