Tori Reynolds has been an avid stock market investor for years. She manages her portfolio...
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Tori Reynolds has been an avid stock market investor for years. She manages her portfolio fairly aggressively and likes to short-sell whenever the opportunity presents itself. Recently, she has become fascinated with stock-index futures, especially the idea of being able to play the market as a whole. Tori thinks the market is headed down, and she decides to short sell some S&P 500 stock-index futures. Assume she shorts 3 contracts at 1,353.46 and has to make a margin deposit of S19,246 for each contract. How much profit will she make, and what will her return on invested capital be if the market does indeed drop so that the CME contracts are trading at 1,303.16 by the time they expire? (The multiple on one S&P 500 Index future contract is $250.)
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