We would use the Put/ Call parity equation to solve the problem. If the equation holds true, we dont have an arbitrage opportunity, however, if the equation does not hold true, we do have arbitrage opportunity.
5. Consider a call and a put option, both with strike price of $30 and 3...
. Consider a call and a put option, both with strike price of $30 and 3 months to expiration. The call trades at $5, the put price is $6, the interest rate is 0, and the price of the underlying stock is $29. (1) Suppose the stock does not pay dividends. Is there an arbitrage? If so, write down the sequence of trades and calculate the arbitrage profit you realize in 3 months. If not, explain why not. (2) Suppose...
Consider a call and a put option, both with strike price of $30 and 3 months to expiration. The call trades at $4, the put price is $5, the interest rate is 0, and the price of the underlying stock is $29. a.Suppose the stock does not pay dividends. Is there an arbitrage? If so, write down the sequence of trades and calculate the arbitrage profit you realize in 3 months. If not, explain why not. b.Suppose the stock will...
A stock's current price is $72. A call option with 3-month maturity and strike price of $ 68 is trading for 6, while a put with the same strike and expiration is trading for $20. The risk free rate is 2%. How much arbitrage profit can you make by selling the put and purchasing a synthetic put? (Provide your answer rounded to two decimals.) You have purchased a put option for $ 11 three months ago. The option's strike price...
A European call option and put option on a stock both have a strike price of $45 and an expiration date in six months. Both sell for $2. The risk-free interest rate is 5% p.a. The current stock price is $43. There is no dividend expected for the next six months. a) If the stock price in three months is $48, which option is in the money and which one is out of the money? b) As an arbitrageur, can...
Problem 12. A European call and put option on a stock both have a strike price of $30 and an expiration date in three months. The price of the call is $3, and the price of the put is $2.25. The risk free interest rate is 10% per annum, the current stock price is $31. Indentify the arbitrage opportunity open to a trader.
Suppose that a call option with a strike price of $48 expires in one year and has a current market price of $5.15. The market price of the underlying stock is $46.24, and the risk-free rate is 1%. Use put-call parity to calculate the price of a put option on the same underlying stock with a strike of $48 and an expiration of one year. 1. The price of a put option on the same underlying stock with a strike...
The price of a call option with a strike of $100 is $10. The price of a put option with a strike of $100 is $5. Interest rates are 0 and the current price of the underlying is $100. Can you make an arbitrage profit? If so how? Describe the trade and your pay offs in detail?
The price of a call option with a strike of $100 is $10. The price of a put option with a strike of $100 is $5. Interest rates are 0 and the current price of the underlying is $100. Can you make an arbitrage profit? If so how? Describe the trade and your pay offs in detail?
The price of a call option with a strike of $100 is $10. The price of a put option with a strike of $100 is $15. Interest rates are 0 and the current price of the underlying is $105. Can you make an arbitrage profit? If so how? Describe the trade and your pay offs in detail
A European call option has a strike price of $20 and an expiration date in six months. The premium for the call option is $5. The current stock price is $25. The risk-free rate is 2% per annum with continuous compounding. What is the payoff to the portfolio, short selling the stock, lending $19.80 and buying a call option? (Hint: fill in the table below.) Value of ST Payoff ST ≤ 20 ST > 20 How much do you pay...