The question where client has 10 million cash and wants S&P exposure for only 3 months and then wants out. The explanation wasn’t clear enough for me. Can someone share light on this. His options were to buy the stocks, buy/sell futures, and buy risk-free bonds. Thanks
Long STock = Long Futures + Long Rf Bond
Yeah I get it know. Something about it though that throws me off. You have 10 mill and what I’m suppose to split the 10 million? But now I realize, you buy 10 million in bonds and pay nothing to get into the futures contact (settlement is at expiry), right?
YOu dont put anything down for futures, so you put all the collateral/margin in t-bills to earn the Rf rate of return. This is where you get yoru Collateral Yield from with Futures.
Great, now you’re putting commodities jargon into it to confuse me a little bit more