Question: a. Circular File stock is selling for $25 a share. You see that call options on the stock with exercise price of $20 are selling

a. Circular File stock is selling for $25 a share. You see that call options on the stock with exercise price of $20 are selling at $3. What should you do? What will happen to the option price as investor identify this opportunity?

b. Now you observe that put options on Circular File with exercise price $30 are selling for $4. What should you do?

Selling price of stock............................$25.00

Call option price ................................. $3.00

Exercise price for call option...................$20.00

Put option price...................................$4.00

Exercise price for put option...................$30.00

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