Price expectations realized based on profitability of hedge

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Reference no: EM131979341

An investor is bullish on small firms but pessimistic about the general economy. The investor goes long in 20 June futures contracts on the S&P 400 Midcap index with futures price 186.75. The investor shorts 15 June futures contracts on the S&P 500 index with futures price 512.15. On the next day, the S&P 400 Midcap futures price is 183.65 and the S&P 500 futures price is 507.30.

Describe the investor’s implied price expectations in the midcap and general markets based on their hedging position.

What does the investor’s profit picture look like?

Were the investor’s price expectations realized based on the profitability of the hedge? Explain

Reference no: EM131979341

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