You believe that the spread between the September S&P 500 future and the S&P 500 Index is too large and will soon correct. This is an example of ________.

Question

Quizplus · Accepted Answer

This is an example of a convergence play, where the expectation is that the spread between the two instruments will come back in line with each other. Pairs trading involves trading two highly correlated instruments against each other, statistical arbitrage involves identifying mispricings between related securities based on their historical relationships, and a long-short equity hedge involves taking long positions in undervalued securities and short positions in overvalued securities.

You Believe That the Spread Between the September S&P 500