You are a "fundamental" mutual fund portfolio manager at Wellington in Boston MA. Abracadabra Company (ticker ABC) will report earnings at 10:00 am, after the market opens at 9:30 am on Friday March 27, 2020. There will be an earnings conference call starting at 10:30. ABC closed at $41.00 per share on Thursday March 26. You've been an investor in Abracadabra for about two years, and you hold a position of 10 million shares. Due to recent inflows into your fund, you need to deploy cash so you are adding to many of your favorite positions. You have a buy order on your trading desk to purchase an additional 1 million shares of Abracadabra Company (ticker ABC). Your trading desk has been working with various brokers over the course of the last ten days or so to complete the order before Abracadabra reports earnings on Friday March 27. Given your size, this kind of trade can take up to two weeks to execute without moving the market. Based on your research you expect the earnings report to be positive so you are hoping to complete ur purchase before then. On Friday morning, you and your trader check in. Your trader tells you that u have completed 900,000 shares over the last few days, but still have 100,000 shares to buy, and asks for your strategy. She tells you that the market looks firm given everyone expects the earnings report to be positive, and the stock will open at $42.10 on Friday morning. You decide to complete your 100,000 share purchase via the exchange, buying "at the open" when the price is set by the pre-opening auction. When ABC opens for trading at 9:30 am, how much profit will you make on the trade? On your position?

Answer rating: 100% (QA)

To calculate the profit on the trade and on the position we first need to determine the total cost o... View the full answer