Question

suppose a call option with a strike price of $60 has a premium of $15, while another call on the same underlying stock has a strike price of $65 and a premium of $14. Both options expire at the same time. in this situation, an arbitrager would... a. buy the 65-strike call and sell the 60-strike short b. sell both call options. c. do nothing because arbitrage isn’t possible d. buy the 60 strike call and sell the 65-strike call e. buy both call option

Answer 1

c. do nothing because arbitrage isn’t possible

Profit payoff of saying Go-call & selling as rail (5-65-14) = 4 S765 S-60-15 +14 S-61 65757,60 S<60 -157 14 Profit payoff of buying 65-call & selling bo-call (6-65-14) - G-6015) bordo -14ő (5-16-15) = 61-5 6535760 s >65 - 14+15 V sa60

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