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28 Sep 2019
McDonald Super is an arbitrageur who looks for arbitrage opportunities in the stock options market. Option-102 is a European put option with a strike price of $50 while its underlying stock (non-dividend paying) has a current price of $37. Option-103 is a European call option with a strike price $18 while the underlying stock (non-dividend paying) has a current price of $20. The market interest rate is fixed at 10% per annum (Time period is 2 years). Based on this situation, please explain whether Mr. Super can make arbitrage gain with both options and how that can be done (given that the price of Option-102 costs $3 while that of Option-103B costs $5).
McDonald Super is an arbitrageur who looks for arbitrage opportunities in the stock options market. Option-102 is a European put option with a strike price of $50 while its underlying stock (non-dividend paying) has a current price of $37. Option-103 is a European call option with a strike price $18 while the underlying stock (non-dividend paying) has a current price of $20. The market interest rate is fixed at 10% per annum (Time period is 2 years). Based on this situation, please explain whether Mr. Super can make arbitrage gain with both options and how that can be done (given that the price of Option-102 costs $3 while that of Option-103B costs $5).
Casey DurganLv2
28 Sep 2019
