The spot price of West Texas Intermediate (WTI) oil is $63 per barrel. The fair forward price for delivery of WTI Oil 4 months from now is $65. However, you notice that WTI Oil forward contracts with delivery in 4 months quoted are at $68 per barrel.

What trades are required now to capture this arbitrage opportunity?

Select one:

Enter a long forward to purchase WTI Oil in 4 months for $68, then simultaneously enter a short forward contract to deliver oil in 4 months at the fair price of $65.

Enter a short forward to deliver WTI Oil in 4 months for $68, then simultaneously enter a long forward contract to buy oil in 4 months at the fair price of $65.

Enter a short forward to deliver WTI Oil in 4 months for $68, then borrow $63 and buy a barrel of oil today in the spot market for $63.

Enter a long forward to purchase WTI Oil in 4 months for $68, then short sell a barrel of oil today for $63 and invest the proceeds in the bank.