4.1 The table below contains a hypothetical information on Amazon.com Inc. Amazon (AMZN; NASDAQ) Expiration March...

 

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4.1 The table below contains a hypothetical information on Amazon.com Inc. Amazon (AMZN; NASDAQ) Expiration March 20, 2022 March 20, 2022 March 20, 2022 April 20, 2022 April 20, 2022 April 20, 2022 Strike 172 178 185 172 178 185 Underlying Stock; Price = $177.98 Call 8.64 4.59 1.91 10.10 6.22 3.45 Put 2.41 4.71 8.47 4.18 6.75 10.32 On February 9, the April 2022 expiration call with exercise price of $178 cost $6.22, while the corresponding put option costs $6.75. Amazon was selling for $177.98, and the annualised interest rate on this date was 1.9%. Amazon is expected to pay a dividend of $0.60 per share on 10 April. 4.1.1 Upon analysing the above information, Sanele believes there is a possible violation of the put-call parity and there could be an arbitrage opportunity. He wants you to confirm if his analysis is correct. [6 Marks] 4.1.2 Advice Sanele on factors to consider before executing this arbitrage strategy. [2 Marks] 4.1 The table below contains a hypothetical information on Amazon.com Inc. Amazon (AMZN; NASDAQ) Expiration March 20, 2022 March 20, 2022 March 20, 2022 April 20, 2022 April 20, 2022 April 20, 2022 Strike 172 178 185 172 178 185 Underlying Stock; Price = $177.98 Call 8.64 4.59 1.91 10.10 6.22 3.45 Put 2.41 4.71 8.47 4.18 6.75 10.32 On February 9, the April 2022 expiration call with exercise price of $178 cost $6.22, while the corresponding put option costs $6.75. Amazon was selling for $177.98, and the annualised interest rate on this date was 1.9%. Amazon is expected to pay a dividend of $0.60 per share on 10 April. 4.1.1 Upon analysing the above information, Sanele believes there is a possible violation of the put-call parity and there could be an arbitrage opportunity. He wants you to confirm if his analysis is correct. [6 Marks] 4.1.2 Advice Sanele on factors to consider before executing this arbitrage strategy. [2 Marks]

Answer rating: 100% (QA)

411 To confirm if there is a possible violation of putcall parity and an arbitrage opportunity we need to check if the putcall parity equation holds t... View the full answer