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Average edge per unit

Market makingEasy

A contract has a known fair value of $100$ . A market maker buys $5$ units at $98$ and sells $5$ units at $103$ . What is the average expected edge per unit traded?

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Hint

Add the edge of each leg, then divide by all units traded.

Solution

The purchase earns $5 \times (100 - 98) = 10$ .
The sale earns $5 \times (103 - 100) = 15$ .
Over $10$ units the average edge is $25 \div 10 = 2.5$ .

Answer: $2.5$

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