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

If the futures contract is overpriced relative to the spot S&P 500 Index, selling the futures contract and buying all the stocks in the S&P 500 will lock in a profit. This is because the futures price will likely converge with the spot price over time, resulting in a profit from the sale of the overpriced futures contract.

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