Let’s say stock in Sony is trading at $127.50 on the Shanghai Exchange. That same stock is trading at $129.50 on Nasdaq. I decide to buy 50 stocks in the Shanghai Exchange and then sell them in Nasdaq. Which statement is correct below:
A) This is considered backwardation. My Profit is $50. The decrease in demand for the lower stock pushes the price of the higher stock up.
B) This is considered arbitrage. My Profit is $75. The decrease in demand for the lower stock pushes the price of the higher stock down.
C) This is considered arbitrage. My Profit is $100. The increase in demand for the lower stock pushes the price of the higher stock down.
D) None of these statements are correct.