Homework Answers
An arbitrage opportunity in options means trading the options in market to earn profits with very little or towards zero risk.
In this question, we see an arbitrage opportunity of options involving the puts with strike of $150 and $140.
The trade needed to get arbitrage shall be:
- Long the put on AAPL with strike $150 at 6
- Short the put on AAPL with strike $140 at 10.
For example: if the stock expires at 142. there will be loss on long put of $6 and gain on short put of $10 with $3 dividends. Hence, if price of AAPL closes anywhere, the guaranteed minimum proft from this strategy would be 10-6= $4 in today's premiums
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I. The risk-free rate is 3%. Apple (AAPL) will pay a $3 dividend in 2 months. The price of a 6-month European put on AAPL with strike $160 is $12. . The price of a 6-month European put on AAPL wi...
6. Derivatives 6a. The price of a European put that expires in four months and has...
6. Derivatives 6a. The price of a European put that expires in four months and has a strike price of $30 is $3. The underlying stock price is $28. The term structure is flat, with all risk-free interest rates being 3%. What is the price of a European call option that expires in four months and has a strike price of $30? 6b. What if the price of the call is $1.5, any arbitrage opportunity? Please show. 6c. What if...
(b) A 6-month European call option on a non-dividend paying stock is cur- rently selling for $3. The stock price is...
(b) A 6-month European call option on a non-dividend paying stock is cur- rently selling for $3. The stock price is $50, the strike price is $55, and the risk-free interest rate is 6% per annum continuously compounded. The price for 6-months European put option with same strike, underlying and maturity is 82. What opportunities are there for an arbitrageur? Describe the strategy and compute the gain.
Problem 12. A European call and put option on a stock both have a strike price...
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.
3. A 6-month European put option with a strike price of $20 sells for $1.44. The...
3. A 6-month European put option with a strike price of $20 sells for $1.44. The stock is priced at $17.50 and the risk-free rate is 10% per annum. (a) (5 points) What are the upper and lower bounds for this option? (b) (10 points) Is there an arbitrage opportunity in part (a)? If so, conduct an arbitrage with 100 shares of stock (clearly illustrate the steps of an arbitrage). What is the arbitrage profit?
The price of a European call that expires in six months and has a strike price...
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the value of a put and the the value of 8- The higher the strike price,...
the value of a put and the the value of 8- The higher the strike price, the a call, all else being equal. a) higher, higher b) lower; lower c) higher, lower d) lower, higher e) Doesn't move; higher 9-A 5-month European call option on a non-dividend-paying stock has a strike price of $30. The underlying stock is selling for $32 and the risk free rate is 6%. If the market value of the call is $35, is there any...
A 2-month European put option on a non-dividend paying stock is currently selling for $2. The...
A 2-month European put option on a non-dividend paying stock is currently selling for $2. The stock price is $47, the strike price is $50, and the risk-free rate is 6% per year (with continuous compounding) for all maturities. Does this create any arbitrage opportunity? Why? Design a strategy to take advantage of this opportunity and specify the profit you make.
The prices of European call and put options on a dividend-paying stock with 6 months to...
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A four-month European put option on a non-dividend-paying stock is currently selling for $2. The stock...
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A six-month European call option on a non-dividend-paying stock is currently selling for $6. The stock...
A six-month European call option on a non-dividend-paying stock is currently selling for $6. The stock price is$64, the strike price is S60. The risk-free interest rate is 12% per annum for all maturities. what opportunities are there for an arbitrageur? (2 points) 1. a. What should be the minimum price of the call option? Does an arbitrage opportunity exist? b. How would you form an arbitrage? What is the arbitrage profit at Time 0? Complete the following table. c....
6. Derivatives 6a. The price of a European put that expires in four months and has a strike price of $30 is $3. The underlying stock price is $28. The term structure is flat, with all risk-free interest rates being 3%. What is the price of a European call option that expires in four months and has a strike price of $30? 6b. What if the price of the call is $1.5, any arbitrage opportunity? Please show. 6c. What if...
(b) A 6-month European call option on a non-dividend paying stock is cur- rently selling for $3. The stock price is $50, the strike price is $55, and the risk-free interest rate is 6% per annum continuously compounded. The price for 6-months European put option with same strike, underlying and maturity is 82. What opportunities are there for an arbitrageur? Describe the strategy and compute the gain.
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.
the value of a put and the the value of 8- The higher the strike price, the a call, all else being equal. a) higher, higher b) lower; lower c) higher, lower d) lower, higher e) Doesn't move; higher 9-A 5-month European call option on a non-dividend-paying stock has a strike price of $30. The underlying stock is selling for $32 and the risk free rate is 6%. If the market value of the call is $35, is there any...
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