Suppose that the market premiums for the K = 35 APR and JUL puts are $8.38/share...

 

Transcribed Image Text:

Suppose that the market premiums for the K = 35 APR and JUL puts are $8.38/share and $7.38/share, respectively. These premiums present an opportunity for an arbitrage profit strategy because the JUL put is priced less than the APR put. Show the complete table of cash flows and the P/L at APR expiration of an arbitrage strategy with these puts and verify that the profit generated by this strategy is indeed an arbitrage profit. Suppose that the market premiums for the K = 35 APR and JUL puts are $8.38/share and $7.38/share, respectively. These premiums present an opportunity for an arbitrage profit strategy because the JUL put is priced less than the APR put. Show the complete table of cash flows and the P/L at APR expiration of an arbitrage strategy with these puts and verify that the profit generated by this strategy is indeed an arbitrage profit.

Answer rating: 100% (QA)

To create a table of cash flows and PL at APR expiration for an arbitrage strategy using the K 35 AP... View the full answer