Equitizing market neutral
I have a stupid question.
You basically do a pairs trade plus buy futures contract that is collateralized with cash. I just don’t know how that works.
Let’s say you think ford is undervalued and gm is over valued.
You would short gm and buy ford. Let’s say you short 1000 worth of gm and buy 1000 worth of ford. You have a beta of 0 or near 0.
Are you supposed to get additional cash for the futures? The way it reads it seems like you take the proceeds from the short sell of gm and buy BOTH ford and futures.
Am I missing something or is it just too late and I’m thick?
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