If the S&P 500 index futures contract is overpriced relative to the spot S&P 500 index,you should __________.
A) buy all the stocks in the S&P 500 and write put options on the S&P 500 index
B) sell all the stocks in the S&P 500 and buy call options on S&P 500 index
C) sell S&P 500 index futures and buy all the stocks in the S&P 500
D) sell short all the stocks in the S&P 500 and buy S&P 500 index futures

Question

Quizplus · Accepted Answer

Selling S&P 500 index futures and buying all stocks in the S&P 500 would allow for a profit if the futures contract decreases in price to match the spot price of the index. Additionally, owning the physical stocks would provide a hedge against any losses from the short futures position. Buying or selling options on the S&P 500 index would not directly address the overpricing of the futures contract. Short selling all stocks in the S&P 500 would result in significant risks and would not necessarily provide a hedge against the overpriced futures contract.

If the S&P 500 Index Futures Contract Is Overpriced Relative