Can anyone pls summarize what’s the LOS all about. I couldn’t get the idea after reading it from schweser. Thanks.
Long Stock = Long Index Future + Long RF bond
Every synthetic strategy in the charter comes from this formula.
Work out risk free return T-bill for the time you want to do the change for, then divide this by the price of the future, and the multiplier.
no. of contracts = ((T-bill (1+rf)^t)/(Pf x multiplier)
For changing a equity to a synthetic cash, need to change it to get the cash free rate, so we need to short the index.
no. of contracts = - (Vp x (1+rf)^t)/pf