CSCO is trading at $37.85 and does not pay dividends. The implied volatility of the December 28
Question:
CSCO is trading at $37.85 and does not pay dividends. The implied volatility of the December 28 Call is 18%. These options are American-style, but it may be assumed that the probability of early exercise of the puts is negligible, given the low interest environment.
The December options expire on Saturday, December 23, 2017 (last traded the day before) and the 1-month T-bill (with a maturity closest date to the expiration date) is yielding 1.25% on a discount basis.
Assuming that the transaction costs and spreads are negligible, is there an arbitrage opportunity here? Explain. If your answer is 'yes', how would you execute it?
Would it make any difference to your answers to the above questions if CSCO paid a dividend? Explain in words and equations without calculations
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill