Table 23.2 shows call options on Amazon stock with the same exercise date in July 2018 and with exercise prices $1,200, $1,300, and $1,400. Notice that the price of the middle call option (with exercise price $1,300) is less than halfway between the prices of the other two calls (with exercise prices $1,200 and $1,400). Suppose that this were not the case. For example, suppose that the price of the middle call were the average of the prices of the other two calls. Show that if you sell two of the middle calls and use the proceeds to buy one each of the other calls, your proceeds in July may be positive but cannot be negative, despite the fact that your net outlay today would be zero. What can you deduce from this example about option pricing?

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Explration Date Exercise Price Call Price Put Price $ 31.10 $1,200 $132.70 April 2018 70.10 1,300 73.20 1,400 33.00 134.20 July 2018 1,200 161.70 53.55 1,300 104.00 96.00 1,400 156.05 62.55 January 2019 88.05 1,200 210.00 155.35 1,300 133.25 1,400 112.00 190.00