Question

A European put option is currently worth $3 and has a strike price of $17. In four months, the put option will expire. The stock price is $19 and the continuously compounding annual risk-free rate of return is .09. What is a European call option with the same exercise price and expiry worth? Also, given that the price of the call option is $5, show how is there an opportunity for arbitrage.

Answer #1

1. A put option with an exercise price of $17 that expires in 4
months is currently worth (costs) $3. The stock price is currently
$19 and the risk free rate of return is 0.09.
a) What is a call option with the same exercise price and expiry
worth?
b) Draw the profit diagram (at expiry) for the
put option from part a.

The strike price for a European call and put option is $56 and
the expiration date for the call and the put is in 9 months. Assume
the call sells for $6, while the put sells for $7. The price of the
stock underlying the call and the put is $55 and the risk free rate
is 3% per annum based on continuous compounding. Identify any
arbitrage opportunity and explain what the trader should do to
capitalize on that opportunity....

A European call option and put option on a stock both have a
strike price of $25 and an expiration date in four months. Both
sell for $4. The risk-free interest rate is 6% per annum, the
current stock price is $23, and a $1 dividend is expected in one
month. Identify the arbitrage opportunity open to a trader.

TSLA stock price is currently at $800. The 6-month $1000-strike
European call option on TSLA has a delta of 0.46. N(d2) of the
option is 0.26. TSLA does not pay dividend. Continuously
compounding interest rate is 5%. Compute the Black-Merton-Scholes
value of the TSLA European put option at the same strike and
expiry.

TSLA stock price is currently at $800. The 6-month $1000-strike
European call option on TSLA has a delta of 0.46. N(d2) of the
option is 0.26. TSLA does not pay dividend. Continuously
compounding interest rate is 5%. Compute the Black-Merton-Scholes
value of the TSLA European put option at the same strike and
expiry.

TSLA stock price is currently at $800. The 6-month $1000-strike
European call option on TSLA has a delta of 0.46. N(d2) of the
option is 0.26. TSLA does not pay dividend. Continuously
compounding interest rate is 5%. Compute the Black-Merton-Scholes
value of the TSLA European put option at the same strike and
expiry.

A
European call option and put option on a stock both have a strike
price of $20 and an expiration date in three months. Both sell for
$2. The risk-free interest rate is 5% per annum, the current stock
price is $25, and a $1 dividend is expected in one month. Identify
the arbitrage opportunity open to a trader.

The price of a European put that expires in six months and has a
strike price of $100 is $3.59. The underlying stock price is $102,
and a dividend of $1.50 is expected in four months. The term
structure is flat, with all risk-free interest rates being 8%
(cont. comp.).
What is the price of a European call option on the same stock
that expires in six months and has a strike price of $100?
Explain in detail the arbitrage...

A
European call option and put option on a stock both have a strike
price of $20 and an expiration date in three months. Both sell for
$3. The risk-free interest rate is 10 % per aunum, the current
stock price is $19 , and a $1 dividend is expected in one month.
identify the arbitrage oppotunity to a trader.

Consider a European call option and a European put option, both
of which have a strike price of $70, and expire in 4 years. The
current price of the stock is $60. If the call option currently
sells for $0.15 more than the put option, the continuously
compounded interest rate is
3.9%
4.9%
5.9%
2.9%

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