Question

Find an arbitrage opportunity in the following market: The yield curve is a flat 3%. AAPL...

Find an arbitrage opportunity in the following market:

The yield curve is a flat 3%.

AAPL stock trades for $300 on the spot market.

A call option expiring January 15, 2021 with a strike of $300 has a price of $90.

A put option expiring January 15, 2021 with a strike of $300 has a price of $85.

Please answer all parts and show work! Need ASAP

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Answer:

The current price of the stock is $300 and the given yield is 3%

=> Value of the stock on the exercise date will be 300*1.03 =309

Gain = 309-300 =$9

Now consider having acollar option under which both buying the call option and selling the put option

=> Premium paid from buying a call and selling the put 90-85 = $5

Therefore the net arbitrage profit will be 9-5 =$4

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