An ETF is tracking the Russell 1000 index (the 1000 large-cap stocks in the Russell 3000 index). The net asset value (NAV) of the stock portfolio underlying the ETF is $6 billion. There are 120 million ETF shares outstanding and each share is currently traded at $52.

Suppose you are an authorized participant (e.g., specialist.) Which one of the following strategies allows you to make a profit with minimum risk?

Group of answer choices

Use $6 million to buy and hold a Russell 1000 portfolio equal to 0.1% of the size of the EFTs underlying portfolio

Use $6.24 million to buy (at $52/share) and hold 0.12 million ETF shares (0.1% of the current number of outstanding ETF shares).

First use $6 million to buy a Russell 1000 portfolio equal to 0.1% of the size of the EFTs underlying portfolio, then deliver this portfolio to the ETF sponsor in exchange for 0.12 million additional ETF shares issued by the fund (0.1% of the current number of outstanding ETF shares), and finally sell these shares in the market at $52/share. This procedure is completed in a short period of time.

First use $6.24 million to buy (at $52/share) 0.12 million ETF shares (0.1% of the current number of outstanding ETF shares), then deliver these shares to the ETF sponsor in exchange for a Russell 1000 portfolio equal to 0.1% of the size of the EFTs underlying portfolio, and finally sell this Russell 1000 portfolio in the market. This procedure is completed in a short period of time.